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POL Government Elected Officials Commissioner Amanda Fritz Blog
Statement on funding for MLS soccer - Printable Version - February 3, 2010 - 5 Comments

Here's what I said at Council this morning, 2/3/2010, when voting on the Development Agreement for Major League Soccer at PGE Park.  My staff and I are confident of our facts.  I am posting the information with comments open, so anyone who disputes the data can offer corrections.

 

First, I acknowledge the good work our negotiating team led by Ken Rust has done in getting the best possible deal for our City under the circumstances.  I also commend Tim Crail and Tom Bizeau on my staff for their expert investigation and analysis of the twists and turns of this saga.

 

Many of the concerns that I have raised over the past year have been addressed by the terms that are included in this agreement.  I appreciate the personal guarantee that Merritt and Henry Paulson have made to cover any shortfall for the first seven years, and to ensure that once started, the project will be seen through to completion.  I like the stipulation similar to the one negotiated with the Trailblazers, requiring the team to stay in Portland or pay as if they were.

 

I appreciate that our finance experts have been able to reconfigure the debt structure in a way that reduces the total debt payment substantially.  By using a line of credit and delaying the issuance of bonds until construction is completed, I am told that the City will likely not need to issue Zero Coupon Bonds.  The result is that instead of paying off the bonds in 2034 at a total cost of $44.5 million, the bonds will be paid off in 2028 for a total cost of $24 million.  If taxpayers have to pay for something that does not provide many family wage jobs after the construction phase, it is better that they will be paying $24 million instead of $44.5.

 

Still, that is $24 million that could be used for other purposes.  Add to that $4.7 million over the course of the contract, for the taxpayers to subsidize top-up wages for stadium event staff, which the city will continue to pay even if workers are successful in using their one shot with an organizing meeting to form a union.  And $600 – 800,000 every eight years to replace the turf.  Projected ticket taxes of about $5 million paid by Timbers fans don’t begin to cover the costs.  What else could we do with over $29 million?

 

Today, PGE Park is a multiple-use stadium that serves soccer, baseball, football, and other sporting events.  In 2001 the City decided to redevelop PGE Park into a better baseball facility, spending $38.5 million to redevelop the Park and an additional $33 million in debt service on those bonds.  Currently, we are scheduled to pay those bonds until 2022 - 12 years after eliminating the ability to use the facility for baseball. 

 

For over 100 years, Portland has had a sports facility that was capable of hosting professional baseball.  At the end of the Beavers 2010 season, that will change.  That is sad. 

 

I could have supported a solution that would have allowed both sports to coexist in PGE Park through use of movable stands.  The inflexibility of MLS and the decision of my colleagues here today will likely cause us to lose baseball in Portland.  I love the game of soccer, and I appreciate that Timbers fans are happy to be getting an MLS franchise.  Soccer fans must recognize that their joy comes at significant costs to baseball, basketball, and hockey fans.  The Beaver fans will likely lose their team, and the Winterhawk and Blazer fans will be subsidizing soccer for many years.

 

It has been said that this deal protects the taxpayers and that no citywide tax dollars or general funds will be used for this project.  That is true at this time, but it is hard to imagine how it can remain so.  The project will be tying up the bulk of the spectator fund until 2028.  The first six years are particularly precarious, with annual shortfalls ranging from $250,000 to $720,000.  No contributions will be made to capital reserves during those years.  In fact, it will be necessary to draw down the Spectator Fund balance significantly to cover that shortfall.

 

It is the lost opportunity for other uses of those funds that is the real cost to taxpayers.  We are currently in the midst of a Coliseum repurposing project.  The Coliseum needs to be rehabilitated, which will take significant resources.  By going forward with the soccer redevelopment, spectator funds will not be available for the Coliseum.  Council created the spectator fund and directs what those funds could be used for.  Council maintains the ability to redefine allowed uses of the spectator fund and what revenue streams go into the Spectator Fund.  It is not like Water or BES rates that are restricted by state law and City Charter.  Of course we must pay off the bonds that are backed by the spectator funds.  But what then?  Then, the Council can choose to spend ticket taxes in any way.  

 

How will we pay for the Coliseum improvements with no spectator funds available?  The only realistic answer is to use urban renewal dollars.  Now, we are talking about impacts to Portland and Multnomah County taxpayers, since the Oregon Convention Center Urban Renewal Area is an Option 3 district, supported by citywide property taxes.  While it may be true to say that there are no direct impacts on citywide taxpayers in redeveloping PGE Park, the indirect cost to taxpayers is substantial.  Without further bonding, once the old PGE Park bonds are paid off the ticket taxes could be used for the Coliseum, or any other purpose the Council chose.

 

The Spectator Fund would be in better shape if PGE Park sat empty for the next 25 years, than if we go forward with incurring additional debt on a project that can NEVER pay for itself.  Any use of PGE Park that does not involve additional debt would leave the spectator fund in better shape than moving forward with this project.

 

I honestly hope that MLS soccer succeeds in Portland.  I hope that the day arrives that the revenues generated from PGE Park will pay for the cost of operations and debt service on PGE Park.  In the meantime, I hope that every Timbers fan will hug a Blazer fan for paying for their MLS venue.



Comments

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Posted by: Michael Bidwell - February 03, 2010 01:49 PM

I am glad that you voted no on the separation of baseball and MLS.  I am sad to see that because of how the deal was negotiated, the improvements to Memorial Coliseum are going to likely be made using URA dollars.  

There are so many possibilities to create mixed market housing including housing to own for people under 120% MFI in that district or the Lloyd District.  The $24 million could have been used for a risk pool to have multiple developers work on a mixed use project with a grocery store, market housing, low income housing (rent and own), and 80-120 MFI housing (rent and own).

I hope you continue to stand up and make sure city dollars spent benefit all people and not just people with a financial interest in a project.

Posted by: John Mulvey - February 03, 2010 03:42 PM

Commissioner Fritz,

Thank you for your position and thank you for your work on behalf of taxpayers, neighborhoods and sensible priorities.

-John Mulvey

Posted by: Steven Rawley - February 03, 2010 06:13 PM

Thank you Amanda. This is the most cogent, comprehensive analysis I have read of the deal.

Posted by: Mark Bunster - February 04, 2010 12:33 AM

Briefly--the CC URA as I understand it was always intended to help subsidize the RQ improvements; the Paulson deal was never really an impact on that...except for when J Isaac was worried that using the MC for the Beavers--and tapping CC URA funds to do it--would not only crimp their plans for Jumptown but sap their funding source as well. So to say that this forces the Blazers to seek URA funding doesn't really ring true to me--that was always their plan over the number of years this has been discussed.

The inflexibility of MLS is something that can be lamented if you wish, although it's not a caprice but rather a serious attempt to maximize interest and revenue for the league, something I think would be important to franchise cities. But it's a fact, and it doesn't mask the reality that but for MLS expansion, the Timbers really had nowhere to go. Their only potential USL opponents left west of the Rockies were in Denver, hardly a sustainable prospect for a minor league team.

One certainly wouldn't stand for being held hostage to keep the team just because it would fold--but that's not what happened here; as you admit the terms were strengthened over time and in fact your complaints are less about risk about more about better opportunities in your view. And if PGE were not renovated to accomodate a new major league franchise in the park, the Timbers would by any reasonable guess cease to exist after this year, and you really WOULD get to test your theory on the benefit of an "empty" PGE Park (the Vikings will play there regardless, as well as various exhibitions). Who would pay the previous PGE debt then?

By the way, did anyone estimate the City revenue from 200 additional construction paychecks to tax this year? What can we do with the money that won't be needed in Parks every year for field renovation and expansion, now that the Paulsons are picking up part of the tab? What will the impact of the sports medicine facility be, financially? How much is the City saving by getting the construction to cover needed work on underlying infrastructure now, instead of in a crisis after a breakage? If we're going to figure in potential costs one way or the other, let's review them all.

Posted by: Amanda Fritz - February 15, 2010 04:11 PM

Thank you each for your comments.

Ticket taxes from the Rose Quarter currently help to pay the existing PGE Park debt, and will continue to do so whether soccer is there and new debt incurred, or not.  The current bonds will be paid off in 2022.  If we had not taken on new debt with the renovation of the renovation, ticket taxes from Rose Quarter events could then be used for any purpose the Council chose - approximately $2 million beginning in 2017 when the Arena bonds are paid off, and $4.6 million beginning in 2023.  While it is likely the funds would have been used to renovate Memorial Coliseum, since many support a nexus between the source of revenue and its use, the Council could choose to spend Spectator Funds on anything, once the bonds are paid off.  A memo was circulated to Council between the first and second readings, clarifying that an erroneous statement had been made in this regard at the first hearing.  Council has the authority to choose how Spectator Funds are spent after the bonds are paid off.

Taxes and fees paid by soccer fans and Merritt Paulson will not even cover the operating costs of PGE Park.  Because of the financing structure, the City will receive no income from PGE Park for 18 years, but will continue to incur costs, such as the top-up wages and the cost of replacing the turf every eight years over the length of the Agreement.

The money Merritt Paulson is paying to Parks is $50k a year, for five years.  The total Parks budget last year was $99 million, of which over $66 million was in operating expenses.  While I appreciate Mr. Paulson's donation, it will not make a significant difference in our ability to provide parks maintenance citywide. It is the same amount that Commissioner Fish raised in one week to fund the free concerts in Washington Park last year.  Whereas, if we had not tied up the Spectator Fund with the renovation, millions of dollars of that money could have been used to fund facilities in parks.

There is nothing in the agreement which provides for rehabilitation of the sewer under PGE Park.  All it does is provide construction and design strategies to avoid breaking it.  

Providence could open a medical facility anywhere in the city.... are you suggesting the soccer players alone will be so injury-prone they will add significantly to profits from local medical care?

I agree the employment of 200 construction workers in the stagnant building trades is a significant benefit.  Mayor Adams summarized his support likening the deal to a stimulus project, and in that regard borrowing $11.9 million to put 200 people to work may make sense.  One difference between this and our federal government is that the City's budget is required to be balanced every year.  We are borrowing the income of the future to provide a home for the Timbers, and with the way the deal is structured, we will have no future revenue to give us a return on the investment.  

What Timbers fans and the majority of the Council said is that the joy of the game and the short term construction jobs are worth the lack of income in later years.  Sincerely, I hope you enjoy the entertainment, and I'm glad for those 200 workers and their families.

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