San Diego Business Journal

The Padres and San Diego city officials have entered a new round of negotiations to create an alternative financing plan for the ballpark construction, which will come to a halt Oct. 2.

In dueling press conferences last week, Mayor Susan Golding and Padres President Larry Lucchino acknowledged that the city cannot go ahead with its original plan to issue up to $299 million in tax free bonds for the ballpark because of an ongoing criminal investigation into Councilwoman Valerie Stallings' purchase and sale of stock in a company chaired by Padres owner John Moores.

"The city can't issue bonds largely because of the U.S. attorney's investigation into the Stallings/Moores matter," Golding said.

Without the tax-free bond funding, the $450 million ballpark that has been under construction since late May will come to a halt next Monday.

Lucchino said both the city and Padres have known for weeks that a $30 million interim financing package approved in June to get the project moving until permanent bonds were issued would run out at the end of September.

However, a press release issued Sept. 19 on the construction suspension identified as jointly issued by the city and Padres took nearly everyone at City Hall by surprise.

"This came completely out of left field," said Councilwoman Chris Kehoe, whose reaction was echoed by several of her colleagues.

Yet in her press conference the following day, Golding said she had met with Lucchino on Sept. 15 and was aware the Padres were going to issue the release. She said she intended to inform the council during a closed session Sept. 19.

Negotiating Tactics?

While some council members labeled the construction suspension a negotiating ploy, Lucchino denied it, saying "such ploys don't entail this type of downside."

"We didn't want to do this. This was an agonizing decision, believe me," he said.

Golding said given the facts of pending litigation and the federal investigation, issuing tax-free bonds is not an option and won't be for an underdetermined length of time.

Because of the city's restrictions, Golding said private sector financing was an alternate way to keep the project going, at least until the city resolves its legal hurdles.

She said the agreement the city and the Padres forged more than two years ago and approved by voters specified that the city's contribution to the ballpark is capped at $225 million, so the ball is really in the Padres' court.

"The Padres are going to have to do one of two things if the project is shut down: One, absorb the costs because they are responsible for cost overruns. Or, two, cut the project back," she said.

Lucchino said the Padres forwarded an alternative financing proposal to the city weeks ago but had not heard from them until Sept. 19. While he didn't reveal any details of the city's proposal, he said the plan entails the Padres taking the lead in borrowing the funds rather than the city, something that was not contained in the original agreement.

City officials did not provide any documents on the proposed alternative financing either.

Bigger Risk

Lucchino said the plan may involve a form of "permanent bridge financing," where the Padres advance the needed construction funds and get repaid by the city once the legal problems are removed and the city is able to issue the bonds.

"They're asking us to take a lot more risk than they did in the MOU (the memorandum of understanding, the ballpark agreement signed by the city and Padres)," he said.

Should the Padres take the lead on financing the project, both parties say the ballpark would cost a lot more. "Clearly, the private sector financing would be more expensive. But you have to weigh that against the shutdown and starting up again and how much that would cost," Golding said.

Golding fell short of calling on Stallings to resign from the council, but said it "is something Valerie has to examine in her own heart." She added her resignation would remove an obstacle in letting the city move ahead in issuing bonds.

Stallings revealed she purchased shares of Neon Systems, a Texas software firm chaired by Moores in an initial public offering last year and later sold the shares at a pre-tax profit of $14,000 on the same day she voted to keep the ballpark project on track.

A federal grand jury has been hearing testimony in the case for weeks and has interviewed both Stallings and Moores, according to sources who requested anonymity.

While Golding and Lucchino wage a war of words, the reality is that the project , to which each party already has contributed some $90 million , will be come to a halt Oct. 2, effectively laying off some 200 construction workers.

Progress on the project in the East Village section of Downtown is clearly visible, with all 1,243 precast concrete piles necessary for the stadium's foundation already installed. At least 20 percent of the concrete has been poured and 29 percent of the steel has been erected, according to an update Lucchino handed out last week.

Opening Day Delay Likely

The suspension will likely push back the opening day for the ballpark beyond July 4, 2002, a date that had already been changed from the original target opening of April 2002.

Neither Golding nor Lucchino held out much hope any alternative financing plan could be approved before the project is shut down. That could result in many workers leaving and finding alternative work, adding to the delays, and increasing costs.

Both sides said they have contacted Major League Baseball about the impending suspension, but Lucchino said it wasn't fair to impose the Padres' financial obligations on 29 other ballclubs.

Though questions and uncertainty prevailed last week, both Golding and Lucchino affirmed the partnership between the Padres and city was intact, and both are committed to finding a long-term solution to the ballpark's financing.

"We're going to look at all reasonable, prudent and ethical means to complete this project," Golding said.

Said Lucchino: "The message is to keep the faith but the problems are real. While the project looks like it's in jeopardy, this project is not over. Now it's up to elected officials and the Padres to work together to make this project a reality."