KEVIN LEININGER: Public funding request for Electric Works is even more complex and expensive than it looks
City Council this week began to consider two crucial components of the $65 million in public funds being sought by Electric Works’ developers: $3.5 million in local income taxes and $10 million from the “Legacy” fund endowed through the sale of the old City Light electric utility. RTM Ventures wants another $3.5 million in income taxes from Allen County officials.
But the real key to meeting that goal — which developers insist is crucial if the project’s $250 million first phase is to proceed — is in the hands of Fort Wayne-Allen County Capital Improvement Board members, who oversee food and beverage taxes and are being asked for $45 million.
“We don’t have a cash balance of $45 million,” said John Stafford, longtime advisor to public officials of both parties and, now, the CIB.
That can mean only one thing: If the CIB agrees to RTM Ventures’ request — a decision isn’t expected until at least next month — it will have to issue a bond to raise the necessary capital. And as any homeowner with a mortgage understands, borrowing money means interest payments, and interest payments inflate an item’s true cost far beyond its face value. If a couple buying a $200,000 house must factor debt service into their budget, imagine the true cost of borrowing $45 million or even more when your income stream is already tight.
Stafford has thought about it, and so have the folks at Umbaugh, the consulting firm that is crunching the numbers in an effort to determine what a $45 million bond would really cost — and whether the CIB can afford the payments. Interest rates, duration and other still undetermined factors will provide the answers, but some have estimated the cost of repaying a 30-year, $45 million bond at $100 million.
Stafford is reluctant to offer a firm number, but said it could be anticipated that “for every $1 borrowed there will (also) be $1 in interest.” What’s more, he said, the financial market could require a debt service reserve of as much as $4 million, which would be in addition to the face value. A bond could also generate $400,000 or so in various issuance fees.
Those “hidden costs” are only part of the reason the CIB may consider issuing a bond worth considerably more than $45 million and perhaps as much as $62 million. The extra cash would allow the city and county to pay their shares of the $65 million installments, conserving some cash for other uses while also improving the CIB’s cash flow until $2.5 million of food and beverage tax-funded debt from previous improvements at the Memorial Coliseum is retired in 2025.
Allen County government may be able to help, however, in addition to the $3.5 million already requested. As I reported last month, the county is flush with cash, including $15 million in its rainy day fund, a general fund balance of $14 million and $20 million in economic development tax reserves. Much of that is earmarked for other uses, but millions more are available to help cover the loan reserve cost or otherwise reduce the borrowed amount.
Commissioner Nelson Peters said he would be willing to consider such tings as paying the entire $3.5 million up front, consider helping with the reserve or doing other things — but only if the city is willing to go the extra mile as well.
So there really are two main questions here: Will the CIB be willing to make a commitment unique in its magnitude? And even if they are, is the money there to cover the debt?
Umbaugh is looking at that, too, but we already have these numbers, thanks to Bart Shaw, executive director of the Grand Wayne Center and CIB advisor: As of July 31 the CIB had a balance of about $8.6 million but about $6.6 million in commitments due within one year for such projects as riverfront development, new downtown hotels and $2 million for environmental clean up for Electric Works on the former General Electric Campus. In other words, the CIB has only $2 million or so in unencumbered funds.
The good news is that the restaurant tax generates about $5 million annually, an amount that has been increasing by about 3 percent ($150,000) per year. Any bond payment would be factored on current income, Stafford said, meaning the CIB’s cash reserves would grow over time should that trend continue, making money available for other projects both known and unknown.
But will the economy continue to boom? Or will a downturn cause people to dine out less frequently, reducing the CIB’s income? Will interest rates continue to rise, as expected? Will RTM Ventures be able to secure the tenants and private financing needed to secure the public commitment in the first place, without which, as Stafford said, the project is essential a very large “spec” building?
The question of whether to commit $65 million in public funds to Electric Works is a difficult and complex one, worthy of the time it has taken to answer. It is even bigger and more complicated than it seems.
This column is the commentary of the writer and does not necessarily reflect the views or opinions of The News-Sentinel. Email Kevin Leininger at email@example.com or call him at 461-8355.