IceRink AltFinancing 081215

City Council Discussion of
Possible Alternative Financing for Ice Rink Project
December 15, 2008

Item 5B5, an Information Item on the City Council Agenda for December 15, 2008

Staff Report

The report reveals for the first time publicly that City Staff has been negotiating a management agreement with "Los Angeles Kings/PIV". No public mention has ever been made previously that city was looking to have a different management then the current ice rink operator. The report makes no mention of a change in plan in this regard, just states negotiation as if everyone knew. Not further identification of this organization is given (such as what PIV stands for).
Total estimated project cost now $26,625,000. That includes predevelopment expenses (redesign of park, utility undergrounding, soil and other site studies), design, construction, construction contingency.
Construction estimate is now $19,500,000 based on estimated cost savings from redesign since construction bids taken last fall.
Looking at need to finance $23,625,000, the total less the $3 million already contributed by PCOC (from civic center expansion funds).
Explains much higher per square foot construction costs result from conditions specific to the site including:

Uncompacted sand fill requires a structural system of $3.9 million instead of about $1 million for a slab foundation
Distance from utility connections results in expected cost of $1.1 million. At a site "more ready for development" the cost would be at most half that.
Installation of traffic signal at Foothill and more then 500 feet of roadway/driveway is estimated at $500,000, also a doubling of cost.

Report contends cost of project per square foot is in line with other such project if cost inflation and these special items are accounted for.
Staff has been using a "draft proforma" submitted by Los Angeles Kings/PIV in working with investment bankers from Bank of America Public Finance Group to figure out the financing needs and options. Studying projected revenues, expense growth, and debt service.
Studies show using interest rates during the summer a gap of $1.3 to $6.7 million between what projected revenues will support and the project cost. So the city would have to contribute that amount up front to reduce the project cost to a financeable level.
With the recent increased interest rates for municipal bonds the gap would increase to $5.7 to 8.8 million.
The report also notes that details of the management plan still under negotiation could also impact projected gross revenues, thus changing the calculation (it doesn't indicate whether the impact would be positive or negative, which probably means negative.)
The report then goes on to say that construction costs may be less now and that it would be good to take advantage of that in spite of the lousy financial markets. It estimates several million dollars could be saved on construction by getting the bids and starting construction during the downturn.
It suggests a potential solution of the city using "internal borrowing" from funds it already has for other purposes to get construction started, then paying those funds back once the financial markets have recovered and a presumably better interest rate could be had. It says that the city could not use the financing to repay the interfund loan interest, so that would have to come out of the General Fund. It claims that using the already constructed facility as a city asset to secure the financing would also improve the situation. The last sentence does mention the possibility of the financial markets not recovering as hoped and/or drawing down other funds causing problems with their reserve policies.

Meeting

Staff mentioned that the bonds would probably be issued in conjunction with other city projects.
In response to a question, staff indicated Edison it is ok with using property directly east for overflow parking. Did not mention use of PCC lot.
Councilperson McAustin seemed to offer the most skeptical questioning of the proposed financing. She asked why the hurry, but the City Manager didn't seem to understand her question. Councilman Tyler was relatively reserved in his questioning.
Councilman Holden seemed to be questioning making it a priority over other projects.
Councilman Madison pushed very strongly for the project, including going forward as soon as possible no matter what financial nonsense is required. He also got the discussion taken out of order, before the broader city financial problems discussion, and thus out of context.
Vice-Mayor Haderlein leaned heavily for the project as well, saying should not just focus on profit/loss because the project has recreational benefit to the community.
There was no mention during the discussion that the project was originally sold as one which would not take any taxpayer funds. That it would only be approved if it was self supporting.
Mayor Bogaard spoke last and seemed to be trying to summarize the situation. He mentioned the "doctrine of increasing compulsion from all the decision already made". He also mentioned that there is lots of support in the community, but he restated that as the "regional community".
There was no discussion about why it is necessary to move forward right now as opposed to waiting a few more months to get a better indicator of the trajectory of the economy and finances. The only reason given in the staff report for going forward with construction immediately is that it might save on costs. But there was no discussion about whether costs were likely to rebound quickly or stay down for awhile. No discussion of the ramifications to the potential management agreement if construction is delayed.
Because this was only an informational item, there was no decision taken on it.
The Council approved without objection paying the architect more to revise the interior design plans to the request of the new potential management LA Kings/PIV.
So staff will forge ahead with the redesign, negotiations with LA Kings/PIV, construction access negotiations, and putting construction out to bid again. Then presumably come back to the Council with a proposal to award the construction contract, approve management and access contracts, and some financing scheme.
On Tuesday December 23 the LA Times had an article about the whole ice rink situation. It focused most on the inadequacies of the current ice rink in the old convention center ballroom. It also discussed the desire to restore the ballroom to that purpose and about the proposed new rink and the financing problems.