While City Hall debates whether to allow developers to issue bonds to build a downtown ballpark, Richmond's first experiment with nongovernment bonds offers a lesson in missed financial projections.
Six years after the Broad Street Community Development Authority floated $67 million in bonds to level the 6th Street Marketplace and fund other improvements, the authority is on schedule to run out of its internal cash reserves by June 30.
“We'll just see where our cash position is from the last bond payment,” says Jim Johnson, a member of the Broad Street authority's board of directors. “It depends on how some things go in the last couple of months.”
There are differences between the ballpark proposal and the Broad Street authority. The $70 million in ballpark bonds would be paid for with new, or speculative, tax revenues generated within a specified tax district in Shockoe Bottom. The $67 million Broad Street authority pays its bond debt mostly with parking revenues and special tax assessments — revenue that largely existed before the bonds were floated.
The Broad Street authority almost immediately ran into setbacks — misinformed revenue forecasting and construction delays — and was forced to recast its financial projections and increase parking fees to make its debt payments.
To make its annual bond payment this year, the Broad Street Community Development Authority needs $5.37 million. The authority told City Council last summer that it expected to be about $124,000 short.
The authority has two primary cash reserves to make up the difference. There's a supplemental reserve fund, which is nearly depleted, and a trustee-held debt reserve with about $6.13 million. The authorityAÿ expects to use all of the first fund and begin dipping into the $6 million fund this summer.Aÿ
But here's the catch: The city agreed to replenish the $6 million fund to the tune of $3 million a year if the bond payments fall short. How short will the authority be this year? Ron Stallings, its chairman, says he isn't sure. He hopes by only a few thousand, but says he won't know for sure until later this month: “We were hoping it would be as little as $3,000.”
But there's an implied warning: Six years into a 30-year bond issue, the authority already is asking the city to make good on a moral obligation it promised wouldn't be necessary. Sold as a deal that wouldn't cost the city a penny, the Broad Street authority — which also included the city's giving the Miller & Rhoads department store building to the authority's master developer — isn't going as planned.
Those proposing a new ballpark in Shockoe Bottom make similar claims — they won't ask the city for a moral obligation to back the bonds if payments fall short, says Paul Kreckman, vice president at Highwoods Properties, the ballpark project's master developer.
That's exactly what the Broad Street Community Development AuthorityAÿ proponents, including city officials, initially promised. Edwin Gaskin, the city's deputy director of economic development in 2003, told Style then that the only way the parking revenues would ever fall short is if the convention center went belly up.
“That's an almost apocalyptic scenario for downtown,” he said.