Consequences of Stadium District?

[DowntownNow]

As reported in the Tulsa World:

Some councilors concerned about consequences of stadium district

by: P.J. LASSEK World Staff Writer
Wednesday, April 08, 2009
4/8/2009 8:15:11 PM

Some city councilors are concerned about what they say might be the unintended consequences of being rushed to approve the Tulsa Stadium Improvement District.

"I hate to say I told you so, but I told you so," Councilor Bill Martinson said during a Tuesday committee meeting.

He said due to the push to create the district, he never got to ask questions and now "the chickens are finally coming home to roost."

The City Council is set to hold a public hearing Thursday on the assessment roll for the district but will not vote.

The roll establishes annual assessment fees on downtown properties for 30 years with $25 million from the fees helping to pay for the construction of a downtown baseball stadium.

The district, which will be activated July 1, includes all properties that lie within the downtown Inner Dispersal Loop. A current assessment district covering the area expires at the end of June.

The new assessment rate will increase to 6.5 cents per square foot on land and structures. Of that, 4.3 cents will help fund the ballpark, and 2.2 cents will continue to provide downtown services such as street cleaning.

Due to changing the assessment calculation so that everyone pays the same rate, some annual fees will increase significantly.

The public hearing is required by law to give property owners an opportunity to voice any objections. At least 30 objections have been filed.

Last summer, the council approved the assessment district and several exemptions, including federally owned properties, those owned by religious organizations with primary religious uses, and residential property with a homestead exemption.

The council was told it must adhere to those exemptions.

Some of the objections are from nonprofits, one of which claims that exempting religious organizations from the assessment fee, but not other nonprofits, violates the mandates of separation of church and state.

Other objections involve square footage calculations that involve property and structure, which will determine total fees to be paid.

In addition to the nonprofits that are objecting, Tulsa County, the state and the Tulsa Housing Authority are challenging the fees. Numerous private property owners also either disagree with the assessment in general, or contest the calculations of their square footage.

Martinson said using the square footage on land and structure may end up backfiring.

"I hope we didn't create a monster" with property owners demolishing vacant buildings to save money, he said.

Councilor Bill Christiansen said it "seems like there may be a lot of unintended consequences," pointing to the nonprofits, county and OSU Medical Center, which is now under the control of a public trust.

Councilor G.T. Bynum said he was told the county was on board with the assessment district. But the county has publicly protested the assessment.

"At some point you have to assume you can believe what you're told," he said.

The Council at this past week's U&EDC meeting may have realized the folly in passing this assessment without proper due diligence after it was declared an "emergency" for passage by the Mayor and her forcing a rushed vote on the matter, saying it had to happen right then to keep the Drillers from leaving to Jenks.  Only thing is, the Drillers didn't sign for quite some time after the vote - this could have allowed the Council more time to inquire and not be questioning itself now.

Property owners are now questioning the legitimacy of the assessment as well as the means by which it is being calculated, namely the doubling of first floor square footage that includes land and also first level improvement.  Business and property owners are being impacted significantly as a result.  As an example, the Council cited OSU Medical center, which has now gone into public trust and was endangered due to lack of funding.  The facility will see an increase from approximately $550/year under the old and soon to be expired Main Mall assessment to $84,000/year for the ballpark assessment according to Council.  This creates a significant burden on an already struggling entity that is much needed in downtown and this same thing is being repeated among other IDL property owners.  Many landowners, like those in the Brady District where one and two story structures cover the entire parcel are common, could conceivably reduce their assessment fees by up to a half if the Council heeds their argument.

Councilor David Patrick also questioned what he and many others had understood to be a total IDL property owner contribution to the ballpark of $25 million over 30 years now being approximately $64.5 million.  Linda Rediman and Donna Richey of the City stated an approximate figure approaching 50 million square feet (for easy figuring) of assessed square footage.  At 4.3 cents/square foot that's $64.5 million over the course of 30 years, not the $25 million that was touted.  This figure includes the debt service fees covering the interest of the bonds.  BOK lent the $25 million at 6.5% interest for purchase of the construction bonds through Kaiser's other interest, the Tulsa Community Foundation.

George Kaiser may be donating $5 or $10 million but BOK will be earning $48 million+/- in interest over 30 years for the $25 million lent to buy the ballpark bonds. Small investment, heck of a return.

Tulsa World left out of the article that the Council now questions the Mayor's and donor's statements supporting this assessment (before the vote was put to Council) that no property owner outside the IDL would pay one cent for the ballpark and they are now realizing that everyone will in fact be paying through increased property taxes to cover the City's and County's portion of the yearly assessment fees on their respective IDL located properties, including the ballpark and its surrounding development.  This throws into question the constitutional element of taxation without representation as stated in the recent TW article regarding the County's and Assessor's objections to the assessment.

It would also stand to reason that the substantial portion of the monies being donated are more for the procurement and development of the surrounding properties since bonds had to be issued for the actual construction of the ballpark rather than first utilizing the pledged $30 million in donations.  This seems to make the argument more sound that the ballpark itself will not be a catalyst for further development, as it was billed to the public, but the surrounding development will be.  If thats the case, where then is the direct benefit as required under state statute for the property owners within the IDL from the creation of a ballpark?  Let's not forget the argument making its way through the courts already questioning the legitimacy of the assessment, the basis of which is that state statutes allow for the creation of an assessment district to "improve" municipal facilities, not create them.  That argument is still alive and well in district court with no call for summary judgement on the part of the City or Donors/Trust, lending credibility to the argument since it hasnt been dismissed.  

Among the arguments also being made in the letters sent to Council appealing the assessments, or portions thereof, is the potential decrease in property values within the IDL as a result of the increased assessment.  Purchasers may not be so inclined to purchase and develop property that will carry a significant assessment  fee for 30 years.  This would then go against what I thought was the entire reason for doing this, encouraging economic growth and investment.  Add to that the adminstration saying that an increase in property values in the future will be the direct benefit to IDL property owners.  Under the state's Real Estate commission guidelines, one can not use what ifs and predictions as a viable argument for potential increased property value given the ever changing nature of the market and its influences.  

Also bear in mind, these monies are separate from the additional 2.2 cents/square foot that are being assessed to pay for IDL services that are estimated at $1.1 million/year.  The annual assessment payments will cover the IDL services portion without need to borrow.  If the investment had truly been just for a ballpark to encourage further economic growth and development as has been stated is the need, the pledged $30 million in donations would have necessitated only a bond for the remaining $9.2 million, $5 million of which would have been repaid using the lease revenues expected from the Drillers and necessitating 63% less public investment.

Will be interesting to see how all of it plays out...court case, Council, County & State Vs. City and all the other interests out there.  I'm just hoping the fears of the Council dont come to light that property owners tear down existing buildings, particularly those of architectural significance but no current use, to decrease their exposure to this assessment.  A surface parking lot could make much more sense to some now.

[waterboy]

A. "George Kaiser may be donating $5 or $10 million but BOK will be earning $48 million+/- in interest over 30 years for the $25 million lent to buy the ballpark bonds. Small investment, heck of a return. "

No better return than if he had lent it out to residential home owners. Mortgage lending has a heck of a return.

B."Among the arguments also being made in the letters sent to Council appealing the assessments, or portions thereof, is the potential decrease in property values within the IDL as a result of the increased assessment.  Purchasers may not be so inclined to purchase and develop property that will carry a significant assessment  fee for 30 years.  This would then go against what I thought was the entire reason for doing this, encouraging economic growth and investment.  Add to that the adminstration saying that an increase in property values in the future will be the direct benefit to IDL property owners.  Under the state's Real Estate commission guidelines, one can not use what ifs and predictions as a viable argument for potential increased property value given the ever changing nature of the market and its influences.  

You seem to want it both ways here. You give credence to letter writers who are predicting decreased value as an argument to lower their assessments, but you won't allow the administration to predict increased value.

C."It would also stand to reason that the substantial portion of the monies being donated are more for the procurement and development of the surrounding properties since bonds had to be issued for the actual construction of the ballpark rather than first utilizing the pledged $30 million in donations.  This seems to make the argument more sound that the ballpark itself will not be a catalyst for further development, as it was billed to the public, but the surrounding development will be.  If thats the case, where then is the direct benefit as required under state statute for the property owners within the IDL from the creation of a ballpark?  Let's not forget the argument making its way through the courts already questioning the legitimacy of the assessment, the basis of which is that state statutes allow for the creation of an assessment district to "improve" municipal facilities, not create them.  That argument is still alive and well in district court with no call for summary judgement on the part of the City or Donors/Trust, lending credibility to the argument since it hasnt been dismissed. "

Its amazing how many inferences you can make in a paragraph so constructed as to infer that you are not only a property owner within the IDL, but likely a lawyer representing other owners within the IDL. Another inference might be that you are a member of staff of the council, a councilor yourself, or a bureaucrat laying the groundwork for candidacy for local office. How about a banker who didn't get a chance to make a great investment like Kaiser's? Or are you one of the landowners who has boarded up his properties in the area surrounding the new stadium, choking off development during the last decade waiting for the really big score, only to be frozen out when the big boys came to play?  Lastly, one might infer from other posts on this forum that your interests are less than altruistic towards the mayor in general. Okay, my inferences aren't as scholarly, but just as defensible.

D. This is ugly stuff. Maybe there is cronyism, maybe even illegal insider activity. If so it will surface. But your remarks are a pretty good description of why Tulsa is so slow to grow. Consider that had Jenks procured the team, it would have no qualms about indebting its citizens in provocative and creative ways, because the investment is leverage for even more development. You then would have been ruminating on how inept the administration was for letting it happen. The buildings downtown would still be in danger of demolition and you could still blame Taylor.

[sgrizzle]

Councilor David Patrick also questioned what he and many others had understood to be a total IDL property owner contribution to the ballpark of $25 million over 30 years now being approximately $64.5 million.  Linda Rediman and Donna Richey of the City stated an approximate figure approaching 50 million square feet (for easy figuring) of assessed square footage.  At 4.3 cents/square foot that's $64.5 million over the course of 30 years, not the $25 million that was touted.  This figure includes the debt service fees covering the interest of the bonds.  BOK lent the $25 million at 6.5% interest for purchase of the construction bonds through Kaiser's other interest, the Tulsa Community Foundation.

George Kaiser may be donating $5 or $10 million but BOK will be earning $48 million+/- in interest over 30 years for the $25 million lent to buy the ballpark bonds. Small investment, heck of a return.

Wha? He earns about $31M in interest.

They make mortgage calculators, try one. That means they have a "possible" $6M overage over 30 years, or $200k per year. Pretty close for using "Ballpark estimates."

[cannon_fodder]

So people are going to tear down buildings to save 4 cents a square foot on the ballpark assessment?  That's the basic argument if I read the article correctly (it seems somewhat like one of my rambles). 

Downtown office space rents for $16 sq/ft per month.  The assessment on that same space breaks down to    $0.003 per month on each square foot.  Warehouse/industrial space is cheaper, residential space more expensive, but my guess is you could raise the rent by $0.003/ft^2 and no one would complain too much. 

For perspective, the assessment on the ONEOK Building would be $1551.60 a month (517,000 square feet).  The note payment on the $48,000,0000 building would be around $320,000 a month.   Estimated rents at 80% capacity would be $7.5 million (assuming high end of the "average" at $18 and 80% paid occupancy - for arguments sake). 

While I am not scoffing at any new tax and myself make the argument that nickel and dime taxes never go away, to argue that $1551.60 a month would put pressure on people to leave the lot empty instead of building a sky scrapper is ridiculous.   I just doubt that is the determining factor.

[RecycleMichael]

Anybody who says the ballpark won't spur new downtown development and activity is a fool.

Those same naysayers said the same thing about the BoKcenter, yet Tuesday night we had a nice selection of restaurants open at night to choose from and my wife even got some shopping in before the show.

The best thing about the ballpark is that it will bring in lots of kids who don't normally go downtown. They will want to work and play downtown as a result when they grow up.

[DowntownNow]

Only time enough for Grizzles right now since I actually can use a mortgage interest calulculator, but since you can't, let me give you the lengthy explaination...btw, its called calculating simple interest, you can find the calculator at webmath.com:

You want to calculate the interest on $25000000 at 6.5% interest per year after 30 year(s).
The formula we'll use for this is the simple interest formula, or:

Where:

P is the principal amount, $25000000.00.

r is the interest rate, 6.5% per year, or in decimal form, 6.5/100=0.065.

t is the time involved, 30....year(s) time periods.

So, t is 30....year time periods.

To find the simple interest, we multiply 2.5e+07 × 0.065 × 30 to get that:

The interest is: $48750000.00

Usually now, the interest is added onto the principal to figure some new amount after 30 year(s),
or 25000000.00 + 48750000.00 = 73750000.00. For example:

If you borrowed the $25000000.00, you would now owe $73750000.00

If you loaned someone $25000000.00, you would now be due $73750000.00

If owned something, like a $25000000.00 bond, it would be worth $73750000.00 now.

For a better example Grizzle, you might want to look at your home mortgage, careful though, could be a shocker.  Calculate your monthly payment times the total months you will be paying and see how much of a difference that will be, prolly somewhere along the lines of 3X+/- your home's purchase price.

[jne]

Anybody who says the ballpark won't spur new downtown development and activity is a fool.

+1

[cannon_fodder]

Downtownnow, before you get all sharp-shooty on us you need to consider the principle of the time-value of money.  The present value of your lump sum 30 years from now is not equal to the face value.  If we use your numbers and assumptions (on which I withhold any meritorious judgment, including the flaw that the payments on the note [essentially an annuity] is determinable as a lump sum . . . but I digress) we will proceed as follows:

Future Value: 73,750,000.00
Time: 30 years
Discount Rate: 6.5%  (or, as you so helpfully put it .065)

Formula: PV   =   FV / (1 + r)^Y
PV = $73,750,000 / (1+.065)^30
Which reduces to PV = $11,149,972.38

So technically, under the facts you gave, the present value of a future lump sum 30 years out of $73,750,000 is $11,149.972.38 "NOW".   That number is of course totally worthless as your underlying assumptions are now entirely correct. 

A more accurate description would be that a $25mil bond at 6.25% payable over 30 years will incur interest expense of $48,750,000.00 (your number) over the life of the bond.  When paid in full the total cash outlays on principle and maintenance of the bond will be $73,750,000 (your number) over the life of the instrument.  It has nothing to do with a future lump sum or the present value ("NOW") of such a payment.

[EDIT]

More research on the proposal, BOK is offering to essentially fund $25mil in muni bonds at 6.25%, so there would be a $25mil lump sum.  However, interest payments would be made over the course of the loan.  The accurate numbers based on a 30 year $25mil loan with interest only payments at 6.25% are:

   Loan Amount   $25,000,000
   Annual Interest Rate   6.50%
   Amortization Period   360
   # of Regular Payments   360
   Begin Date   5/1/2009
      
Summary      
      
   Monthly Payment   $135,416.67
   Balloon Payment    $25,135,416.67
   Balloon Payment w/Rounding    $25,135,416.67
      
   Total Payments    $73,885,417.87
   Total Interest Paid    $48,885,417.87

So the numbers were correct, but the statement ignores the time value of money.  The value of all payments is not worth $73,885,417 "now" as indicated.  I'll look up the discount rate appropriate for Tulsa's bond rating and post below.

[/edit]

[Oil Capital]

Still a pretty fine return on a low-risk loan.

Waterboy, mortgage rates are currently running below 5% compared to the 6.5% on this one, and on the whole I would venture to guess are more risky than this one.

[patric]

Looks like the district also includes Moss Jail.
Good luck collecting on that.

[Oil Capital]

Downtown office space rents for $16 sq/ft per month.  The assessment on that same space breaks down to    $0.003 per month on each square foot. 

Really?  We're paying 11-ish in one of downtown's very best buildings.

[sgrizzle]

Really?  We're paying 11-ish in one of downtown's very best buildings.

I know spaces renting for $25

Just depends on the space.

[cannon_fodder]

Still a pretty fine return on a low-risk loan.

Waterboy, mortgage rates are currently running below 5% compared to the 6.5% on this one, and on the whole I would venture to guess are more risky than this one.

1) I'm not sure the bank gets to take a security interest in the stadium (muni's usually are not secured) and if they did, it is not as liquid as a home.  If they had to "repo" it they would likely be stuck operating a ballpark or selling it at a great loss.  The risks are really hard to compare.

2) Tulsa has been downgraded to a debt score of "AA-"  .  Which is pretty just OK (OKC is one of a handful to be AAA).  I'm not a bond expert and the markets are all messed up at the moment, but it appears a 20 year bond at AA- is selling for a 5.3% yield to the investor.  Generally this would mean a somewhat lower Coupon rate in light of the tax free status, but what the hell do I know.  But 6.5% seems high. 

Other AA- issues are going with a coupon rate of 3.5 - 4.5% on 5 - 10 year bonds.  So maybe out that far it's a good rate. Maybe this keeps the debt "off the books" since they are not general obligation bonds so the city rating stays higher?  I really don't know.   Again, I need to be very clear that I am not a bond expert - anyone with more insight on the 6.5% rate is welcome to fill us in on what a fair coupon rate for a 30 year AA Muni bond is. 

http://fixedincome.fidelity.com/fi/FICorpNotesDisplay?name=MUNIBD

US$72.965 mil cap imp rev bnds (Tulsa) ser 2006A dtd 06/01/2006 due 06/01/2007-2012         2006A         Jun 01, 2009         AA-/Stable, AA-/
Stable(SPUR)       Nov 19, 2008        (last issuance, Moody's)

[Oil Capital]

I know spaces renting for $25

Just depends on the space.

For office space?  wow.  That seems a bit foolish.

[Oil Capital]

1) I'm not sure the bank gets to take a security interest in the stadium (muni's usually are not secured) and if they did, it is not as liquid as a home.  If they had to "repo" it they would likely be stuck operating a ballpark or selling it at a great loss.  The risks are really hard to compare.

2) Tulsa has been downgraded to a debt score of "AA-"  .  Which is pretty just OK (OKC is one of a handful to be AAA).  I'm not a bond expert and the markets are all messed up at the moment, but it appears a 20 year bond at AA- is selling for a 5.3% yield to the investor.  Generally this would mean a somewhat lower Coupon rate in light of the tax free status, but what the hell do I know.  But 6.5% seems high. 

Other AA- issues are going with a coupon rate of 3.5 - 4.5% on 5 - 10 year bonds.  So maybe out that far it's a good rate. Maybe this keeps the debt "off the books" since they are not general obligation bonds so the city rating stays higher?  I really don't know.   Again, I need to be very clear that I am not a bond expert - anyone with more insight on the 6.5% rate is welcome to fill us in on what a fair coupon rate for a 30 year AA Muni bond is. 

http://fixedincome.fidelity.com/fi/FICorpNotesDisplay?name=MUNIBD

US$72.965 mil cap imp rev bnds (Tulsa) ser 2006A dtd 06/01/2006 due 06/01/2007-2012         2006A         Jun 01, 2009         AA-/Stable, AA-/
Stable(SPUR)       Nov 19, 2008        (last issuance, Moody's)

IIRC, the bank is not loaning any money to the city of Tulsa or to the Stadium Trust.  I believe the bank is loaning the money to the infinitely wealthy community foundation, controlled by . . . .well, you know the story.  The bank's actual risk of not getting re-paid?  I think you can do the math.