When a dollar is really 18 million dollars
January 7, 2009 3:19 PM
Some of the media reports I've seen about the latest developments regarding Overture have failed to emphasize the key point, in my view.
The City is NOT being offered the building for one dollar. The City is being offered the building for $12 million, or more to the point, at least $18 million when we take into account the total cost of repaying a $12 million loan over 30 years.
Here is how the Overture Development Corporation (ODC) is proposing to divvy up its remaining $28 million construction debt:
* Jerry Frautschi would take $4 million of it, which is about equal to the amount he is already obligated to pay over the next couple of years to pay debt maintenance on the loan under the current agreement.
* The Overture reserve accounts would be wiped out for another $4 million.
* The three banks that loaned the money are being asked to forgive $8 million of it.
* City taxpayers would be asked to pick up the rest - $12 million, which is 43% or the largest share of the debt.
This last point is somewhat complicated, which probably explains some of the confusion. Currently, the City gets about a half million dollars a year in payments in lieu of taxes (PILOT) to cover city services like police and fire protection for Overture. The City also subsidizes Overture's operations for about $1.7 million a year. This amount represents what we used to spend on the old Civic Center adjusted for inflation. In any event, the ODC is proposing that the City forgo the half million dollars in PILOT. That money would then be used to cover the remaining $12 million in construction debt.
But anyway you slice it, whether it's a half million dollars paid out or a half million dollars foregone, it's still a half million dollars a year of the public's money that would go to pay off the construction debt. And over the 30 year life of that debt the real cost would be at least $18 million including interest.
City's taxpayers have no legal or moral obligation to pick up the cost of building the facility. That was never in the cards and should not be now.