Interest will push arena's cost well beyond $200M

$1 billion: Estimated cost of new Falcons stadium

$200 million: Public’s up front contribution to construction cost, generated from bonds backed by Atlanta hotel-motel tax

$448 million: Preliminary estimate of total principal and interest payments on the bonds over 30 years

$90 million: Under law that earmarks 39.3 percent of hotel-motel tax receipts for stadium, this is the approximate additional tax money over 30 years that would go to stadium expenses other than debt service, if tax collections remain at current level

$450 million: Additional hotel-motel tax money for stadium expenses if tax collections increase by 2.65 percent annually

FUNDING STADIUM EXPENSES

The latest draft of the proposed Falcons stadium deal spells out the ways in which hotel-motel tax money not needed for debt payments could be spent, if available, on other stadium needs:

—- Up to $3 million per year (increasing 2 percent annually) into a “refurbishment and maintenance reserve account,” which would be used for “preventative or routine maintenance and … replacements of equipment parts.”

—- Up to $1 million per year (increasing 2 percent annually) into a “renewal and extension account” for capital improvements.

—- Up to $3.5 million per year (increasing 2 percent annually) into an “other events staging expense account” to reimburse the Falcons, who would run the stadium, for expenses related to staging Georgia Dome legacy events such as the SEC Championship game and Chick-fil-A Bowl.

—- Up to $8 million per year to the “operating and maintenance expense account” for any other items in the stadium’s annual expense budget.

—- And any additional funds into the “surplus account,” to be used for any “lawful purpose” related to the stadium.

(Note: Funds would be deposited into these accounts only to the extent they are available from the stadium’s 39.3-percent portion of the Atlanta hotel-motel tax after debt payments.)

Source: March 3 draft of memorandum of understanding

CONTINUING COVERAGE

The Atlanta Journal-Constitution is closely examining the new Falcons stadium proposal at every step. For this story, staff writer Tim Tucker reviewed financial documents to determine how much public money will really go into the project. Currently the deal calls for $200 million of the estimated $1 billion construction cost to be raised through public bonds backed by hotel-motel tax revenue. Tucker found that related financing and interest costs would significantly boost the total – much like interest costs on a mortgage. He also found that, regardless of the bonding amount, 39.3 percent of hotel-motel tax collections in Atlanta over 30 years by law must go to stadium costs. Some of that would pay off the construction bonds, but the rest – potentially hundreds of millions, if tax receipts grow – could be used for operations and maintenance.

The proposed deal for a new Atlanta Falcons stadium will cost hundreds of millions of dollars more in public money than the $200 million slated for construction, an analysis by The Atlanta Journal-Constitution shows.

Interest and principal payments on the public’s share of the construction debt could total nearly $450 million over the life of the 30-year bonds, government documents reveal. And, under one projection, about $450 million more could eventually be directed toward the stadium’s operation and maintenance, according to documents reviewed by the AJC.

So far the public debate has focused on the upfront construction cost for the new stadium — the Atlanta City Council’s Finance Committee will again discuss the proposal at a meeting today. A more detailed look at the underlying terms shows the costs to the public build substantially over the 30-year life of the deal. Much like a home mortgage, a portion of the costs are associated with interest payments.

Beyond those costs, the public could shell out hundreds of millions of dollars more because of the nature of the government’s funding mechanism for the public share of the project. No matter what the stadium costs to build and operate, by law 39.3 percent of the city’s 7-cents-per-dollar hotel-motel tax must go to the project — the same percentage that currently goes to the Georgia Dome.

Through more than two years of negotiation, that percentage has driven the deal. It was established by the state legislature long before any other particulars of the stadium, including cost, were known.

Jim Beard, the city of Atlanta’s chief financial officer, said the public typically separates borrowing costs from sticker price. “When I ask you how much you paid for a house, you tell me the price, not principal and interest,” Beard said.

William Perry, executive director of Common Cause Georgia, said the complexities are a big part of the reason his group this week called on the City Council to hold a public referendum on using public funds.

“I don’t think the public understands (the deal) at all,” Perry said.

The new stadium’s share of the hotel-motel taxes dates to 1989, when the General Assembly approved the Dome funding plan. The same 39.3 percent was simply kept in place when, in 2010, the General Assembly authorized extending the tax as a funding vehicle for a replacement stadium.

The variable — and a big part of the complexity of the proposed deal — is how much money that tax will generate for the stadium over the next few decades.

If it simply matches what it currently generates for the Dome — about $18 million per year — the total would be $540 million over 30 years, the length of the Falcons’ proposed lease.

But if it grows by an average of 2.65 percent annually – described as a “base case long-term target growth” rate in one study for the Georgia World Congress Center Authority — it would generate about $900 million for the stadium over 30 years. The study showed the annual amount surpassing $30 million in the early 2030s and $40 million in the early 2040s.

Beard said he considers such a projection “not likely” and added, “When I go to the (bond) rating agencies, trust me they won’t believe that.” He said the city would project “slow growth” for five years and questioned the validity of modeling hotel prices beyond that.

Falcons president Rich McKay said the deal structure is “the same” as for the Georgia Dome and added that, whatever the increase in tax revenue, stadium expenses also will rise.

“Stadium operations, maintenance and (capital expenditures) will always be substantially higher than any projected excess hotel-motel tax revenue in any given year,” he said. “It’s also improtant to remember that the amount of excess (tax) funds from year to year is uncertain and not guaranteed. … The risk totally lies with us.”

Under any likely scenario, the stadium’s portion of the hotel-motel tax would exceed debt payments to some extent — starting at several million dollars in the first year, according to one projection. What’s left would be available to offset expenses that otherwise would be the Falcons’ responsibility. At the state-run Dome, excess hotel-motel tax funds are similarly used for other expenses.

The Falcons and Atlanta Mayor Kasim Reed last week agreed on key terms of a funding plan for the estimated $1 billion stadium. The Falcons and other private sources, including the NFL, would be responsible for about $800 million of the construction cost. But several steps remain before a final deal is done. They include approval from the City Council and completion of a detailed agreement between the Falcons and the GWCC Authority, on whose campus the $1 billion stadium would be built.

One aspect of the deal that appears cemented: the $200 million from the proceeds of city-issued bonds that would go toward construction. But there are complexities around even that figure.

A preliminary city financing plan, obtained by the AJC, calls for the bonds to be structured so that they will actually generate proceeds of about $253 million. Some of the additional bond proceeds would be used for a required debt service reserve fund ($15.4 million) and other expenses of the transaction ($3.9 million).

But the biggest reason for the additional proceeds is that Georgia Dome bonds won’t be paid off until three years after the new stadium debt is issued in mid-2014. Since the hotel-motel tax revenue will continue to be applied to Dome debt during those three years, the city plans to put aside $33.75 million from the bond proceeds and use it to pay interest on the new stadium debt during construction.

Once the Georgia Dome bonds are paid off, hotel-motel tax revenue would provide the principal and interest payments on the new stadium.

The bonds for the new stadium would be paid off in 2043. The total payments would be $448,684,250 — about $15.37 million per year starting in 2017.

Beard stressed that the figures are based on recent conditions for one scenario under consideration and subject to change depending on interest rates, credit ratings and other factors.

While the upfront construction cost has drawn the most attention, the latest version of the proposed stadium deal — dated March 3 and obtained by the AJC — details how additional hotel-motel tax money, if available, would flow into stadium accounts for “maintenance, operation and improvement” of the facility.

A series of uses for the money are spelled out. For example, up to $3 million per year would go into a “refurbishment and maintenance reserve account” for preventive and routine maintenance. Up to $3.5 million could be used to reimburse the Falcons for operating expenses related to Georgia Dome legacy events such as the SEC Championship game and the Chick-fil-A Bowl.

Ultimately, all of the stadium’s 39.3-percent share of the hotel-motel tax not needed for debt service would find its way into some account.

Reed and Falcons owner Arthur Blank have noted that 85 percent of hotel-motel taxes are paid by out-of-state visitors. Blank is on the board of directors of Cox Enterprises, whose media holdings include The Atlanta Journal-Constitution.

Reed noted last week that no one has introduced a bill in the Legislature to redirect the money to another purpose. And even if one had been introduced, he added, “Candidly, I don’t believe that bill would pass.”

Reed has said he considers the stadium an investment in preserving and growing the tourism industry that generates the tax revenue in the first place.

“Our convention and tourism business employs 229,000 people. This is our core business in this town,” he said. “We host 39 million people (per year) in this town. We are competing for multiple events right now, and this (stadium), I think, is going to make us more competitive.”