From No Downtown Stadium…
SAN DIEGO (Aug. 22, 2016)—Three new independent financial analyses of the Chargers tax measure, including one released today by the San Diego County Taxpayers Association, each have reached the same conclusion – the tax measure is a bad deal for the City and San Diegans.
“These studies provide true value to voters because they were independently prepared rather than commissioned by an organization with a financial interest in the stadium,” said April Boling, Chair of the No Downtown Stadium – Jobs and Streets First! No on C coalition. “These independent analyses confirm what we have been told by tourism professionals – the Chargers tax measure may not provide enough revenues from raising the hotel tax to cover costs, which leaves San Diego taxpayers on the hook.”
Despite repeated requests, the Chargers have not publicly released their financial analysis, nor, more importantly, the assumptions used to develop their conclusions.
Highlights from each of the 3 independent analyses are below along with links to each study.
SAN DIEGO COUNTY TAXPAYERS ASSOCIATION
“The Chargers proposal would put the City of San Diego’s General Fund at significant risk,” the Association’s 36-page analysis concludes. “Even with optimistic assumptions and ignoring the costs to taxpayers of moving the MTS bus yard and the remaining debt on Qualcomm Stadium, the City of San Diego would not bring in adequate revenue to cover the anticipated costs associated with this proposal.”
The analysis pegged the City’s shortfall at more than $400 million and noted, “This figure does NOT account for the additional interest that would need to be paid on public debt.”
The analysis compared the City’s agreement with the Padres to the Chargers tax measure and found the arrangement with the Padres is a much better deal for taxpayers than what the Chargers have proposed.
“The City and the Padres share certain revenue streams…In the Chargers proposal, there is no explicit revenue sharing between the City of San Diego and the Chargers for non-football events in the stadium. In theory, the City would be able to keep all non-football stadium revenue to utilize how it sees fit, but the lease framework in the proposal first dedicates any non-football revenue earned by the City in the stadium to operations and maintenance before the Chargers’ lease would require their contribution to operations and maintenance.”
Taxpayers Association President and CEO Haney Hong said: “Our analysis is more than fair, and in fact gives the Chargers the benefit of the doubt. We took their publicly-shared assumptions on additional hotel room nights and presumed, as they have in the past, that 25% of the team’s fan base comes from outside San Diego. We made optimistic assumptions that any additional seat in the new stadium would be filled by someone from out of town, every pre-season and home game, and doubled the likely revenue the City would get from other uses of the stadium. We still ended up with a shortfall of more than $400 from the hotel tax increase the Chargers are proposing. That means the debt would have to be paid from the City’s General Fund, or the City would not pay creditors back.”
Page 2: “…with the City’s general fund having the lowest priority in the flow of funds, receiving revenues in a given year only if all of the prior requirements have been met…The ability of these TOT revenues to meet the Initiative’s requirements is the primary financial risk factor to the City.”
Page 2: “i) Project Cost (combined construction, land acquisition, environmental mitigation, ancillary infrastructure); ii) interest rates for the bonds (including what portion can be tax exempt versus taxable); and iii) future TOT revenue growth. Ultimately, it will be the actual level of each of these three variables together, that over time will determine whether the TOT revenues can initially fund the Project and then meet all future annual debt service, O&M and CapEx expenditures…It should be noted that the Goldman Sachs financial model and cash flows assume a tax exempt interest rate on 100% of the bonds. If under tax law at the time of issuance, all or a portion of the bonds were required to be issued on a taxable basis, costs over the life of the bond repayment period may increase significantly based on this single factor alone,” says the 21-page analysis commissioned by the City and prepared by Public Resources Advisory Group (PRAG).
Page 4: “In addition, total debt service on the portion of the Project Cost that would be bonded for assuming 30‐year bonds at 5% would cost $2.3 billion in TOT revenues.” << NOTE: This is more than twice as high as the Chargers estimate of $1.1 billion for the public’s share of their project.
Page 5: “In our analysis that varied Goldman Sachs’ assumptions, there were various scenarios where Overall Coverage could not be achieved.”
Page 6: “…to the best of our knowledge, there have not been any billion‐dollar TOT‐backed revenue bond transactions, and a transaction of this size may well carry a size penalty…it is a narrow and relatively volatile revenue stream.”
Page 9: “In fiscal 2009 and 2010, the City’s TOT revenues declined precipitously by 11.7% and 11.9%, respectively for a total decline over two years of 22.3%. However, from fiscal 2010 through fiscal 2015, the City’s TOT revenues have increased by an average annual growth rate of 8.6%.”
Page 10: “In addition to uncertain revenues, the other important uncertainties today are what the actual Project Cost will be and what interest rates will be when the time comes to issue the bonds.”
Page 18: “TOT revenues represent an important revenue source for the City and increasing the levy for this purpose may have a negative impact on levying it for other purposes in the future. While there are many factors that influence industry groups from selecting convention locations, costs are certainly one of them and a higher TOT is a cost component.”
Page 19: “At this time, we believe that it is not possible for the City to know if the projected revenue stream would be sufficient to meet Overall Coverage.”
Page 2: “The Chargers Stadium-Convention Center has been positioned as an expansion to the existing SDCC, but the distance between the San Diego Convention Center and the proposed “expansion” is too great to be used jointly. Event organizers who plan conventions that are too large to fit into the existing SDCC will not use the existing facility in combination with the Stadium-Convention Center.”
Page 3: “The proposed Stadium-Convention Center would primarily compete with the existing Convention Center and the expanded Marriott Marquis San Diego Marina for short-term business and reduce the occupancy of the existing Convention Center.”
Page 3: “Because of its small size, limited availability during football season, and event planner dissatisfaction with the plan, we estimate that the Stadium-Convention Center would attract approximately 69,000 net new room nights per year.”
Page 3: “The new room nights would generate $2.3 million per year in lodging tax revenue. This compares to the proposed $67 million annual expenditure, which includes the public investment for construction and operating costs. This revenue does not justify the combined investment and annual operating expenses of the Stadium-Convention Center.”
Page 3: “Moreover, under the current proposal, the financing plan eliminates the existing 2% Tourism Marketing District (“TMD”) assessment and replaces it with a guaranteed 1% and non-guaranteed additional 1% after the previous year’s expenses and operating costs have been satisfied. This puts funding at risk and could hinder the ability to market and promote the city and convention center(s).”
The 62-page report completed by Chicago-based HVS Convention, Sports & Entertainment Facilities Consulting also points out, “the joint use of football stadiums and convention centers has been tried and largely failed in three cities – St. Louis, Indianapolis and Atlanta.”
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The Chargers won’t share their data? Shocker.
Let’s ask ourselves: how many of the guys on sports radio live and pay taxes within the City of San Diego? If they don’t, they get NO say in this as far as I’m concerned. If they reside in Poway or Santee or Encinitas, their city services aren’t affected one lick by this.