San Diego Business Journal

Faced with escalating obstacles, including potential criminal charges that may invalidate past ballpark votes, San Diego city officials are talking to the Padres about financing the Downtown stadium through a private bond issue.

The discussions have taken place over the past month in the wake of pending litigation surrounding the ballpark and a recent joint investigation into potential conflict of interest violations by San Diego City Councilwoman Valerie Stallings.

Last week, Stallings and several other City Council members were interviewed by the District Attorney's Office concerning Stallings' purchase of IPO stock in a Texas company chaired by Padres owner John Moores, and her subsequent votes for the ballpark.

In addition to an investigation conducted by the District Attorney's Office, the matter is also being investigated by the FBI. As part of the investigation, a federal grand jury subpoenaed a raft of documents and memos from the city clerk's office last week.

Assistant City Attorney Les Girard said the FBI was involved in the investigation, acting in its role as "the police department for the U.S. Attorney's Office."

In a closed session vote last week, the council approved spending another $15,000 for outside legal services for Stallings, who revealed in her economic interests forms that she purchased shares in Neon Systems when it went public last March. Stallings said she sold the shares about three weeks later and netted an after-tax profit of $7,600.

Legal Expenses

The latest expenditure brings the total for Stallings' outside legal counsel to $30,000.

She is represented by John Wertz, a partner in the San Diego firm of Sullivan McDade Wertz & Wallace, the same attorney who represented Mayor Susan Golding last year when she was charged with civil violations by the county grand jury. San Diego Superior Court judge ruled those charges as groundless.

Girard said council approval of spending tax dollars for Stallings was permitted by law because it involved actions Stallings took as a member of the City Council. The key allegation is Stallings voted on ballpark issues after she owned stock in the Moores' controlled company, a possible conflict-of-interest violation.

Should criminal charges be filed against Stallings, it could call into question the validity of all previous council votes on the ballpark and may cause the council to vote again on at least some of the ballpark issues, Girard said.

Stallings, who was elected to represent the 6th District in 1991, and re-elected in 1995 and 1998, announced a few weeks ago she will not vote on any ballpark issues "to avoid even the appearance of impropriety."

The joint investigation on the Stallings matter by county and federal authorities is clearly a sore point with some of her colleagues.

'Bad Judgment'

"The council is very disappointed about the bad judgment exercised by Valerie Stallings and John Moores in this action, which has caused an erosion of the public's trust," said City Councilwoman Chris Kehoe.

The possibility of criminal charges against Stallings is just one more obstacle preventing the city from issuing up to $299 million in tax-free bonds for the ballpark project, Girard said.

In addition, the city will likely not issue bonds while there are about a dozen civil lawsuits pending against the project.

Added to this situation are questions surrounding the construction of a 1,200-room hotel at the Campbell Shipyard site. Hotelier Doug Manchester, who was awarded the developer rights to the project last year, has yet to line up financing for the $240 million project. The hotel was supposed to provide some $5 million in hotel room taxes needed by the city to pay off an estimated $20 million annual debt service on the bonds.

These ongoing problems, plus an insistence by the Padres to get the ballpark construction completed by mid-2002, have prompted city officials and the Padres to discuss the possibility of the Padres taking over all the ballpark's financing.

'Different Alternatives'

Jack McGrory, the Padres' COO who will take on a new role as president of the franchise's development subsidiary, confirmed the club has been discussing "a lot of different alternatives" with city officials for about the past month.

"It's clear now that there's going to be delays, and in the project in its current state, we're looking at a number of different alternatives," McGrory said.

While other financing alternatives have been discussed, the best and cheapest way is still having the city issue tax-free bonds, he said.

One potential scenario has the Padres issuing their own corporate bonds for the ballpark, now estimated to cost $450 million.

"The Padres could issue their own bonds and sell them to private investors, venture capitalists, real estate investment trusts, whoever wanted to buy them," Kehoe said.

The original financing plan called for the city to issue up to $299 million in lease revenue bonds that would be repaid from transient occupancy taxes collected on hotel rooms.

The remainder of the ballpark's cost would be borne by the Padres in the form of naming rights, concession rights and private investment; the Centre City Development Corp., the city's Downtown redevelopment agency; and the San Diego Unified Port District.

Master Developer

The Padres were awarded the master developer rights to the ballpark and all the hotel, office, retail and residential construction within the 26-block ballpark district in an agreement approved by voters in November 1998. The estimated total investment in the project, including the ballpark, is more than $1 billion.

Last month, the council approved advancing the Padres $10 million to keep the ballpark project on track. The Padres said they will couple the advance with some $20 million of their own for the project, but that sum will pay for costs only through this fall, McGrory said.

Should the Padres agree to finance the ballpark through private bonds, the cost could be as much as $5 million more annually over a 30-year term, he said.

Along with the Padres issuing bonds to pay for the ballpark, the discussions have also involved possibly substituting a different type of tax to repay city-issued bonds, Kehoe said.

Because of problems associated with the construction of all the planned hotels, one alternative being explored is substituting the tax increment generated from redevelopment in the East Village area as the funding source for the bonds' debt service, she said.

Calls to other city staff for further information on the financing alternatives were not returned.