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Friday, Apr 12, 2024

Ballpark Cost Jump Won’t Delay The Project

The price tag for the Padres ballpark climbed last week, but a City Council majority maintains it was an expected hike, one that shouldn’t delay the project.

The council approved an authorization of up to $299 million in lease revenue bonds, or $74 million more than the $225 million figure cited in the voter-approved memorandum of understanding. The Dec. 14 vote was 6-3, with council members Chris Kehoe, Judy McCarty and Barbara Warden opposed.

Although some officials expressed surprise over the higher financing costs, and doubts about how the city can afford it, the overriding sentiment was delaying the project would drive up costs even more.

Councilman Harry Mathis said any delays to the project “would send exactly the wrong signal.”

“We need to send a signal that this is a visionary council and that we’re not losing sight of the objective,” Mathis said.

It’s clear from last week’s council meeting that their vision will cost the city more than what was originally anticipated.

But the higher cost is something each council member knew, going back to July 1998 when the city hammered out its agreement with the Padres.

“The bond issue was never going to be for $225 million,” said Patricia Frazier, the city’s deputy city manager.

As described in the memorandum of understanding approved by nearly 60 percent of the city’s voters, financing for the $411 million ballpark would come from $296 million in public funds and $115 million from the Padres.

The public money would be provided by the city in the form of $225 million in bond proceeds; $50 million from the Centre City Development Corp., the city’s Downtown redevelopment agency; and $21 million from the San Diego Unified Port District.

Among the costs of issuing bonds are interest payments on the bonds, a reserve fund equal to a year’s debt service, and payments to hired consultants, including bond counsel, underwriters, rating agencies and possibly bond insurance.

Even with last year’s estimates, when the memorandum of understanding was being negotiated, city staffers estimated having to issue $273 million in revenue bonds to obtain $225 million in construction funding.

Today, the city’s estimates are a $291 million bond issue, probably in March right before a planned April groundbreaking.

Frazier said a maximum of $299 million was requested to cover the possibility the issue could reach that level.

The main factors causing the higher financing costs are a larger reserve fund, higher interest payments during construction, and the costs for bond insurance.

Bond insurance, which wasn’t factored into the original estimate because it wasn’t seen as necessary, is estimated to run about $3.5 million, Frazier said.

Then there is the question of interest rates that will be assigned by the underwriters at the time the bonds are issued.

Frazier said the current estimate is 6.35 percent, up from the original estimate of 6.25 percent, but that could go up or down, depending on what the national economy and the Federal Reserve does over the next several months.

Warden said the financial projections were too uncertain and showed gaps, prompting her to delay the project until her questions were answered.

“I need a comfort zone, but I don’t have it,” she said.

McCarty also doubted aspects of the financing plan, and that the city would be unable to issue the bonds in March as planned because of two pending lawsuits triggered by the ballpark’s environmental report.

The San Diego County Taxpayers Association also weighed in with a request to suspend all work on the ballpark until all cost overruns and a more accurate assessment of city revenues for the ballpark are determined.

The plan calls for the bonds to be repaid from transient occupancy taxes levied on hotel room guests. The newly revised borrowing plan based on $291 million in bonds entails an annual debt payment of $23 million.

The taxes will be generated from 2,350 new hotel rooms, including 1,500 hotel rooms planned for the ballpark district vicinity (nearly all of that from the Campbell Shipyard hotel) and 850 rooms that will be built by the Padres inside the 26-block ballpark district.

Besides three hotels, the Padres agreed to construct offices, retail shops and residential projects around the ballpark, all of which will generate taxes, and are expected to attract further private investment.

Despite warnings that the project costs were nearly out of control, most on the council continued to support the ballpark as a partnership that is working, and would eventually prove successful.

“No one said this was going to be an easy package to put together,” said Councilman Byron Wear. “This is the biggest redevelopment project in the city’s history.”


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