Richmond’s mayor promises taxpayers won’t be left holding the bag and the city’s financial advisers say it’ll fill public coffers, not drain them.
But a proposal to build a 17,500-seat arena downtown is fueling deep skepticism in a city where residents have long complained about neglect of basic services like schools and roads in favor of shiny development deals that don’t always pan out.
The proposal, spearheaded by Dominion Energy CEO Tom Farrell, includes eye-popping promises: the largest arena in the state, 9,300 new jobs, 2,000 apartments, a 500-room hotel, dozens of new restaurants.
“The overarching goal for this proposal is to significantly improve the quality of life for all Richmond residents,” Mayor Levar Stoney said as he announced the project earlier this month.
To pay for the deal, he says the city will tap new tax revenue from the arena and the sale and redevelopment of eight other blocks of city owned land, which he says will leave a hefty surplus to pay for other pressing city needs, including schools.
But if those projections prove too rosy, the deal is not without risk: The city’s general fund would be on the hook for more than $300 million in real estate tax revenue it expects to generate with or without the project over the next 30 years.
That’s because the city is tying the financing of the arena to the creation of a tax increment financing district across a broad swath of downtown, new revenues from which will serve as a kind of collateral for investors.
The city’s financial adviser, David Rose of Davenport & Company, is bullish, citing months of due diligence and a guarantee of $900 million in private investment, which he says essentially means the deal is too big to fail.
“I don’t see a downside to this project,” he said. “That’s a big statement.”
‘It’s not the downtown we deserve’
Arena proposals elsewhere in the state have floundered recently. Norfolk dropped discussions about upgrading and expanding the Scope, a 13,000-seat venue, earlier this year when they saw the $200 million price tag. “Building a new arena isn’t rising up to the top of the capital project pile,” the director of the venue told Inside Business in February.
And in 2017, Virginia Beach abandoned a partnership with developers who hoped to build a brand new, 18,000 seat arena, saying the developer never met its financing commitments.
Stoney says he will accomplish what those localities couldn’t — or, in Norfolk’s case, didn’t want to.
The plan is based on a proposal submitted by Navy Hill District Corp, a nonprofit set up by Farrell, who has been pushing behind the scenes to get a new coliseum built for years. He says he is not an investor and does not stand to benefit financially from the project.
“If you walk down the street here a couple of blocks and look at the city center of the capital of the state, it’s not the downtown we deserve,” he said. “I have grandchildren, and part of me is doing this for them.”
The plan calls for the demolition of the city’s existing coliseum, which opened in 1971 with 13,000 seats. Officials say its replacement will bring back the A-list performers and college basketball tournaments that had long since abandoned the city.
The developer and the city are pitching the project as a catalyst for the broader redevelopment of a languishing section of downtown by replacing aging city office buildings and surface parking lots with a new high-rise hotel, office and retail space, apartments and restaurants.
They also tout the inclusion of a bus transfer station and a 480 units of affordable housing, though the vast majority of those affordable units would be for people making 80 percent of the area media income, which in the Richmond area translates to rents as high as $1,100 a month for an individual.
“Richmond is a first class city,” Stoney said. “It’s the capital city of the Commonwealth of Virginia. It’s time to give our city and its residents the venue it deserves and the economic opportunities that come with it.”
A first look at the finances
The city gave the public its first detailed look at the proposal this week, filing a package of ordinances that were delivered to City Council members in thick binders that contained more than 1,000 pages.
As currently proposed, the city would be responsible for issuing and paying back $350 million in bonds for the new arena, which it will own. The project also calls for using private funds to redevelop a historic armory into a smaller, secondary venue, which the city would also own.
The other elements of the project – the hotel, office, retail and apartments – would be financed by a private investment of at least $900 million. The new construction would be built on land owned by the city, which officials propose selling for $15.8 million – a figure they say is based on private negotiations rather than their market value.
To pay the arena bonds back, the city plans to commit all new sales, real estate, lodging and admissions tax revenues from both the arena and the privately financed development to a special fund.
The city estimates the arrangement will leave about $675 million in unencumbered new revenue to pay for other city needs.
Critics have questioned some of the economic impact assumptions built into that estimate, including the number of nights developers expect the arena to be booked and the numbers of tickets they expect to sell. But the city’s financial advisers, Davenport & Company, say that even if the deal performs half as well as expected, the city would still break even over 30 years.
The risk to the city’s general fund lies in the creation of a huge tax increment financing district downtown from which the city estimates it will collect $308 million in new real estate tax revenue over the next 30 years whether the blocks included in the project are redeveloped or not.
The city’s plan sweeps that money in with all the other tax revenue from the project, and while it wouldn’t go to bondholders in a break-even scenario or better, the funds would start to flow out of the city if the project generates anything less than half as much revenue as currently estimated.
If revenue from the tax increment district still isn’t enough to cover the bond payments, the city is under no obligation to cough up any additional money because the city plans to issue non-recourse bonds, which do not obligate the city to make up any further shortfalls. Davenport says a default in that scenario would not impact the city’s credit rating.
The city’s financial advisers frame that outcome as unlikely, and say that if anything, the project will beat expectations.
“We’re pretty conservative,” Rose said. “There’s no advantage to us looking at this through rose-colored glasses.”
Does Richmond need an arena?
In a city scarred by development deals that failed to pan out, many residents are already expressing doubt over the proposal.
Just last year, the City Council voted to pay $750,000 annually for 15 years for a training camp facility the city built for the Washington Redskins. As in this case, city leaders had promised it would more than pay for itself. Instead, the financial assumptions underlying the claim proved wildly unrealistic.
Before the details of the coliseum project were even announced this week, Paul Goldman, a local activist and one-time adviser to former Gov. Doug Wilder, collected more than 15,000 signatures from city residents to get a voter referendum challenging the proposal on the ballot in November, which he called the “Put Schools First Campaign.”
If adopted, it would amend the city charter to require 51 percent of any dollars raised through the financing scheme to modernize schools.
One school board member has sued to keep the measure off the ballot. Another board member, Kenya Gibson, said she supports Goldman’s effort because she doesn’t trust the administration’s financial projections and, in either case, doesn’t believe school funding should rise or fall on the success of massive development proposals.
“I think the city has made it very clear that the city should be putting schools first,” she said. “And so, the notion that this coliseum is a path to improving and to building new schools, I think, is contrary to common sense.”
The manner in which the proposal came about has also fueled skepticism. After Farrell pushed the project, Stoney put out an open request for proposals, but many viewed the requirements set by the city in that document as tailored to Farrell’s plan. And, in either case, his group was the sole bidder.
And then there’s the question of whether city residents agree with the mayor and business leaders that the city needs a new coliseum. Because city administrators never asked, it’s unknown what potential the city parcels in question might hold for development if not tied to an arena plan.
So far, City Council members who will ultimately sign off on the proposal have remained circumspect, saying they’ll take months to delve into the proposal’s details. To that end, they’ve established a citizen-led committee to vet the proposal and plan to hire an independent consultant to review the assumptions underlying the revenue estimates.
“This is the path that our mayor has taken and I believe it’s on the shoulders of the city council to vet the deal and get as much citizen input as we can before we make a decision,” said Councilman Michael Jones.