Guest MINDSETTER™ Kinch: PawSox Must Put Up More Money for Deal to Work
Thursday, September 28, 2017
We all want the PawSox to stay! We don’t need a bunch of hired PR guns to tell us about the contributions it has made to our state - we know that. I’ll be jubilant if the numbers add up and the team stays in Pawtucket.
I want to thank Senate President Dominick Ruggerio and Senate Finance Chairman William Conley for finally giving Pawtucket taxpayers a chance to finally be heard on this issue. Speaker Nicholas Mattiello has scheduled hearings in October. He also deserves thanks.
The proposal involves three partners -- the PawSox, State of Rhode Island, and City of Pawtucket (City). My concern is the financial issues that may impact the City taxpayers, and the fact that the proposed legislation makes the City the only partner responsible for ‘land costs’ and ‘related infrastructure.'
Costs to Pawtucket in Focus
It is worth noting here that City officials are asking us to believe that there will be no need for new exits or access routes to the site. That is preposterous and not credible. Of course, there will be. Especially, considering that there is no direct access to Apex from 95 South.
The City's contribution is to be $15 million ($29 million counting debt service). The first $5 million must go directly to the construction of the stadium, which leaves $10 million to pay all other costs.
There are estimates that land acquisition costs by eminent domain are ‘in the range of $10 million.’ That eats up what is left of Pawtucket’s bond money. What costs are included in the $10 million?
Eminent domain laws entitle the landowner to pay for all costs, including replacement costs for the business. Those costs, which could be in the millions, are not funded in the legislation.
And the Environment
Media outlets have reported that Apex has a $6.5 million environmental cleanup problem of ‘toxic materials.’ That needs to be addressed before any construction could begin. All the partners are aware of it, but none has spoken publicly about it. Why? These costs are also not funded in the legislation.
So, who pays for all these additional costs? The legislation points the finger directly at the taxpayers of Pawtucket!
Pawtucket's share of the bonds is to be paid by some very questionable revenues, specifically “donations.” There may well be an ethics issue with soliciting donations from local businesses.
Additionally, General Treasurer Seth Magaziner has expressed serious doubts about Pawtucket’s ability to pay its bonds. He also asserts that State of Rhode Island may still be responsible for Pawtucket’s debt which contradicts other state officials.
Our mayor admits there is no definite plan to acquire the Apex property. Its acquisition price must be determined, including toxic clean-up costs and all replacement costs, before the General Assembly approves the legislation. The risk is too great to Pawtucket taxpayers.
Lacking at Backstop
Yet another risk is that City officials also admit that there is no definite plan to pay down Pawtucket’s bonds, at least short term. Pawtucket’s non-education state aid is a backstop for those payments. Pawtucket is a distressed community, and it needs every penny of that money.
Personally, I believe the PawSox must put up more upfront cash than the $12 million they have pledged. That would reduce the bond debt for Rhode Island and Pawtucket. The lease at McCoy should be extended, and the stadium financing plan should be placed before the voters in 2018. The team won't allow that. Make no mistake; the team is driving this bus.
However, I think the team gives up its right to dictate the timeline of this proposal when asking for $72 million of state and local money.
As background, Mr. Larry Luccchino, PawSox Chairman, while an owner of the San Diego Padres supported a public vote in 1998 prior to building a new stadium (Petco Park). The Padres also opened up its books prior to the vote. Why aren’t we afforded the same courtesies?
Petco Park has not been revenue neutral, as promised! Have we learned anything from our past follies?
Pawtucket does not have the money to make up any shortfalls. The land costs must be spread more evenly between the partners. The risk is too great for Pawtucket.
Related Slideshow: 7 Things to Know About the Newest PawSox Public Financing Scheme - June
The backdrop of the entire discussion of the financing for a PawSox stadium is the 2018 election. According to private polling, the majority of Rhode Islanders believe that the owners of the PawSox should pay for their own stadium.
How hard will Governor Gina Raimondo and Speaker Nick Mattiello push for a new controversial stadium? They both won by the thinnest of margins - Raimondo won the Governorship with just 40 percent of the vote and Mattiello won re-election on paper ballots by a margin of just 85 votes.
Moody’s Mixed Bag on Pawtucket’s Bond Rating
According to the rating agency Moody's, Pawtucket's outlook is:
Moody's does not typically assign outlooks to local government credits in the A rating category with this amount of debt outstanding.
Factors that Could Lead to an Upgrade
Sustained increase in reserve levels
Improvement in wealth and income indices
Reduction in pension and OPEB liabilities leading to greater operating flexibility
Factors that Could Lead to a Downgrade
Decline in reserve levels
Significant increase in debt and pension costs
Sustained contraction of the tax base
Len Lardaro Warns of Risk to RI Taxpayers
URI economist and author of the Lardaro Report warns:
"While there might not be direct risk to RI, there is indirect risk: If the deal collapses and Pawtucket absorbs the entire loss, their credit rating would definitely fall, and in a worst case scenario, they might flirt with possible bankruptcy. RI could never just allow them to fall.
At any rate, our state's credit rating would clearly be negatively affected."
Just Like the Last Deal
There is little difference between the May proposal negotiated between RI Commerce, the City of Pawtucket, and the PawSox ownership and the legislation introduced in the RI State Senate on Tuesday by Pawtucket State Senator William Conley.
Ultimately, Rhode Island taxpayers will be on the hook if this deal goes sour.
Top Business Leaders Question Public Financing
In May, Rhode Island business leader Angus Davis, who heads Upserve, talked about his company's growth and spoke out about the billionaire group of Pawtucket Red Sox owners who are asking for $38 million to build a new park.
"If you have a good business, you have investors to back it," said Davis, who began his career by selling his company TellMe to Microsoft - for a reported $800 million. "And by the way, the people behind this team know a thing or two about business, about speaking with investors, and so on."
In a wide-ranging interview, Davis took to task the approach of the PawSox ownership - in light of the state's bourgeoning fiscal needs.
"I get that someone, whether with stadiums or public infrastructure investments, can spur development and economic growth, I get all that," said Davis. "OK, fine. How about, 'We'll build the ballpark -- we need the city or state to come in and give us a highway off-ramp or something like that,' so it's easier to get people to and from."
"That's a little more understandable than, 'Hey, 'I'd like to leverage the taxpayers balance sheet so I can borrow money at 3%," said Davis. "To me? Come on."
Opponents are Mobilizing
It did not take long for the old band of opponents of public financing to the stadium to mobilize - literally just hours after the new legislation was announced.
Calling the latest Pawtucket Red Sox legislative effort -- which is expected to see a fall session for legislators to consider -- "insane," community organizer and Pawtucket resident David Norton appeared on GoLocal LIVE on Tuesday.
"People in Rhode Island, and Pawtucket, are upset regarding collective billionaires getting tax money. [Last night], Facebook and social media started to light up," aid Norton. "We fought this fight two years ago, we thought we won it, we kind of fought it this year, we thought we won it."
"It's upsetting to Rhode Islanders and people of Pawtucket," said Norton.
"We did a poll on the "you know you're from Pawtucket " Facebook page -- the sample size was 200 -- 160 or so were dead set against the PawSox getting $15 million from the City of Pawtucket."
Millions in Environmental Contamination Costs, Who Pays?
In May, GoLocal exclsuively reported that the owners of the Apex site in Pawtucket and the previous owners are battling in Superior Court over indemnification provisions from more than $6.4 million in environmental clean-up costs tied to the land being eyed for the new PawSox Stadium. Both lead and aresnic contaminate the site according to the suits.
The two parties include Andrew Gates of Apex Development Company who purchased the property for $24 million and a number of members of the prominent Fain family, who previously had ownership interest in the property.
Gates’ entity purchased the property in December of 1998 according to city tax records and the property is now assessed at just under $4.3 million — a drop of nearly $20 million in value.
According to state records, Gates is the managing partner in Zargo, LLC, which filed the action in December of 2016.
In the Zargo, LLC complaint against the Fain group (the previous owners), Zargo asserts in the fact section of their action that, ”Zargo and entities have become aware of liabilities, title issues, environmental conditions and safety issues (among other things), which include but are not limited to hazardous/toxic substances (including but not limited to polycyclic aromatic hydrocarbons, arsenic, and lead), toxic materials, and underground waste oil tanks on the Real Estate (collectively, the 'Claims'), all of which are covered by the Agreement’s indemnity provisions.”
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