As debates go, the ongoing discussion over how to finance the City for Champions downtown projects quickly boils down to a few questions.
Will Colorado Springs taxpayers have to foot part of the bill? Would that mean a public vote by city residents?
And if they don’t, who will provide the tens of millions in “local public sector funding” as required?
The total cost of constructing C4C’s two downtown projects, including $51.5 million in infrastructure upgrades, is now estimated at slightly more than $200 million. In hand: $0.
Private funding is planned to cover $27.9 million, with the remaining funds to be raised through complex financing strategies involving at least four bond issues supported by city, county and state sales tax increment financing.
The project may prove to be profitable for bond underwriters, and might provide southwest downtown property owners with enhanced values. Whether such a leveraged funding structure will meet with the approval of City Council, not to mention city residents, remains unknown.
The Colorado Economic Development Commission has voted to allocate $120 million in state sales tax increment funding to C4C, but that’s not cash.
It’s a projected revenue stream that the city, acting through the Urban Renewal Authority, can use to support a bond issue of about $47.5 million. The city originally estimated that such bonds would carry an interest rate of 6 percent with a term of 25 years.
Those assumptions, driven by an average debt coverage ratio of 1.20x, suggest that $122 million in SSTIF funding would yield about $51 million in bond proceeds.
City economic vitality staffer Bob Cope, who signed the original application for state funds, has prepared a new, more conservative pro forma, lowering the amount realized by the bond issues to $47.5 million.
While $47.5 million is a hefty sum, it’s a long way from the $82 million that the city originally projected. That’s because the EDC wouldn’t go along with the city’s request to use 21 percent of the estimated “net new sales tax increment funding” to support the proposed bonds, allowing only 13.08 percent.
A much-amended application
The city’s proposal was initially vetted by the EDC staff and passed on to a third-party analyst (Economic Development Systems). EDS highlighted multiple deficiencies in the application, and the city responded both by modifying the proposal and countering objections. EDC staff weighed in again, recommending that the city be allocated $51.3 million in TIF funds.
That would have been less than half of the city’s revised request for $120 million, and would have limited the city’s bonding authority to about $24 million.
But the state commission overrode both the third-party analyst and its own staff, voting 7-2 to allocate the revised city request.
The analyst and the EDC staff had been especially skeptical about C4C’s overall funding strategy, with such wording as: “There is no statement that the City or the URA has these funds in an adopted budget or other formally adopted funding commitment.”
That may have been appropriate. It’s not certain that the city can proceed immediately to issue bonds.
According to a highly placed source in the city administration, prospective bond buyers may not be interested in the securities until TIF funds in the city’s designated account have built up enough to create a reserve. Such a reserve would protect bondholders from revenue shortfalls, but might take several years to accumulate, and meanwhile the projects would be stalled.
Another caveat concerns the performance (or lack thereof) of bonds issued by the Colorado Springs Urban Renewal Authority to fund improvements associated with the University Village Colorado shopping center on North Nevada Avenue.
Both issues of those bonds are in technical default, owing to less-than-expected tax revenues. That doesn’t mean that the bondholders can foreclose on the center, or that they’re receiving no income from their investment. Such securities come with a guarantee and a caveat: Bondholders are entitled to certain designated revenues, but if those revenues are less than expected, they have no immediate recourse.
“Those (defaults) shouldn’t have any effect,” Cope said. “These are different projects, differently secured. Each project should be evaluated on its own merits.”
That history may, however, make bond buyers and underwriters more cautious about future issues from CSURA.
Publicly, Mayor Steve Bach’s administration is optimistic about funding. Responding to state concerns in December, the city cited numerous possibilities.
“The applicant is excited to share newly identified sources of funds … including municipal bonding, sales tax increment revenues from City for Champions components, the City Parking Enterprise and Pikes Peak Rural Transportation Authority. The City is committed to using the tax increment generated in the RTA zone as a result of City for Champions projects.”
The city’s response stated that the Parking Enterprise has existing bonding capacity to finance the proposed 1,500-car parking structure. Also, it cited the Pikes Peak Rural Transportation Authority budget as including $2.12 million to go toward the proposed America the Beautiful Park bridge. And the response indicated that El Paso County “will support the Colorado Sports and Event Center by utilizing incremental sales tax revenue generated from the City for Champions projects.”
But as Bach pointed out in a presentation last week, none of these potential sources can be utilized without City Council approval. And it appears that the still-skeptical Council majority may withhold such approval unless a way can be found to overcome their objections.
A new funding structure
State funding comes with strings attached. The city is obliged to allocate a minimum of 42 percent of funds to the Olympic Museum and Hall of Fame and 23 percent to the Sports and Event Center. The city can also spend up to 21 percent on eligible infrastructure improvements, as defined by the EDC. If 70 percent of the $47.5 million raised from bond issues is used for downtown projects and associated infrastructure, the total would be $33.2 million — but doing so might adversely affect funding for the proposed AFA visitor center, which has no state-mandated funding allocation.
Add an estimated $27.9 million in private funding to be raised by supporters of the Olympic Museum, $29.5 million in parking system revenue bonds to pay for the parking garage, and $2.12 million from PPRTA toward the “iconic bridge.” That’s $92.7 million, leaving a $78.5 million gap to be filled by “local public funding.”
Other funding would come from bonds to be secured by city and county sales tax increments, which are projected to raise $49.3 million, and from bonds secured by certain tax revenues from an expanded southwest downtown urban renewal area to be issued by the Urban Renewal Authority, projected for $48.6 million. An additional $10 million will come from “new market tax credits or municipal bonds.”
Cope suggests that City Council could create a series of new urban renewal districts, enabling CSURA to authorize multiple small bond issues, which would better match bond maturities with project construction.
Yet such a complex structure might not pass muster with City Council. It can be argued that TIF payments would negatively impact city (and county) revenues.
A radical solution
A new option has come forward, perhaps making it possible to structure TIF financing so that municipal general fund revenues will immediately increase by nearly $2 million annually, instead of diminishing.
First, City Council and CSURA would have to agree to terminate all existing downtown urban renewal districts and create a new super-district. Its boundaries would include all terminated districts, as well as much of downtown and near-downtown Colorado Springs. It could be bounded by Cache La Poudre Street to the north, Shooks Run to the east, and Interstate 25 to the south and west. The district’s size would be tailored to support a bond issue that would fill the funding gap and also accomplish another important city objective.
Payments on the certificates of participation used to finance the 2009 U.S. Olympic Committee retention plan amount to about $1.7 million annually, paid from general fund revenues. The COPs are secured by liens on the Police Operations Center and Fire Station 21.
The present balance owed is approximately $31 million, with average annual payments of $2.24 million. The bonds will not be paid off until 2039.
The USOC deal was unpopular with Colorado Springs residents. It caused widespread dissatisfaction with city elected officials, and contributed to the rejection of city manager form of government.
By paying off COPs with a bond issue secured by a projected incremental increase in city/county sales and property tax revenues in the new district, the city would free up $2.24 million in average annual debt-service payments.
“That’s an interesting idea,” said Cope. “It’s certainly an alternative to consider.”
Would a majority of City Council be receptive to such a deal, perceiving it as a win-win? That depends upon the specific parameters, feasibility analyses and a realistic assessment of costs and benefits.
“I would never have thought of that,” said Councilor Val Snider. “If it works, it’d be great.”