Doubling back to the GOP guv debate held on Saturday at UNCC, I got a chuckle out of Mayor Pat McCrory objecting to Fred Smith following McCrory’s complaint about lack of space to lock up bad guys with the observation that McCrory had no trouble finding money to build a $265 million Uptown arena.
McCrory called this “an ill-informed attack,” and said that hotel-motel taxes paid for the arena. Not quite.
Three cents of the occupancy tax and three cents of the car rental tax go into the kitty to help retire arena debt. This is why Charlotte had to go back to Raleigh to hike the hotel-motel tax to the highest on the East Coast in order to pay for the $170 million NASCAR Hall of Fame. Then, in the order to afford the $150 million Wachovia Arts Tower package of arts attractions, the car rental tax was hiked, turned into a dedicated revenue stream for CATS, and General Fund revenues that formerly flowed to CATS were used to help pay for those projects. Follow? You are not supposed to.
In addition, because the tourism fund dollars are not by law dedicated to pay off arena debt, the city went ahead and mortgaged $105 million worth of public property, including jail space. Or as bond rating service Fitch explained as Wachovia (surprise!) took the debt to market:
Mortgaged assets provide a moderate amount of security, as they are required to total 50% of certificate principal and Fitch views some, but not all, as essential to the city’s operations. These assets include: the city’s law enforcement center, shared with Mecklenburg County (but fully owned by Charlotte); a satellite police facility; the historic city hall; two fire stations; a park; and a number of administrative and training facilities. The appraised value of the mortgaged assets is $105 million, or 57% of the $185.5 million in certificate principal that will be outstanding after the series 2003G issuance. The arena project itself is not part of the mortgaged property.
Although not pledged to certificate repayment, city officials expect reserves and annual revenues in a tourism fund, comprising a three-cent occupancy tax and three-cent car rental tax revenues, to be sufficient to cover installment payments. Debt service is back-loaded to allow the accumulation of sufficient tourism fund reserves, as annual revenues will not match debt service requirements until fiscal 2025, assuming a 4% annual increase in those revenues beginning in fiscal 2006. At the end of fiscal 2003, the accumulated balance in the tourism fund was $14.7 million. Although there is a risk that the tourism fund will not always adequately cover debt service, Fitch believes that the city has enough financial flexibility in its roughly $350 million general fund to subsidize installment payments if the tourism fund falls short.
Series G certificates will partially fund construction of a $265 million, 18,500-seat arena to be constructed in the city’s uptown area for a new National Basketball Association (NBA) team that will begin playing in Charlotte in the 2004-2005 season.
Ultimately, the Charlotte property taxpayer is on the hook for the arena, no two ways around it. Now so long as the revenue streams into the tourism fund match Wachovia’s projections, the debt can be served. However, just last week we had CMUD’s banker-provided assumptions blow up by $30 million, resulting in plans to hit ratepayers with an 18 percent hike in their water bills.
In addition, because the city still owns the arena and the land under it, the project does not generate property tax revenues back to the General Fund. The same situation will obtain for the Uptown baseball park. This is the way Mayor McCrory and the Powers That Be have structured things in Charlotte during the past decade. That was — and is — the civic priority in this town.
