At a packed town hall meeting just days before Cobb commissioners voted in favor of a new Atlanta Braves stadium, Chairman Tim Lee faced a barrage of concern about the financial burden on taxpayers.
After a string of pointed questions about the county’s “total liability,” Lee assured the crowd that Cobb would spend $300 million upfront, and roughly $1 million a year for capital maintenance. Asked if there is anything else in “infrastructure or interest,” the chairman spoke with unwavering certainty: “Nope. It’s been specifically capped.”
But Cobb’s share of stadium project expenses is in fact rising.
Taxpayers are on the hook for an additional $18.2 million in estimated borrowing costs that have surfaced since the stadium deal was approved by Cobb commissioners, an examination by the Atlanta Journal-Constitution has found. County finance officials plan to roll the borrowing costs into the 30-year public bonds to be issued for the project, bumping the bond amount to $386 million from the $368 million approved by Cobb commissioners in November.
“I don’t think we misled or did anything,” Lee said in an interview last month. “In November, we had a conversation based on where we were at the that time. And things are changing. We still don’t know that total.”
Lee called the $18.2 million an “insignificant issue” that “nobody really understands or cares about.”
“What really matters is the annual payment,” on the debt, Lee said. “We can afford that. How it happens is not as (important) as what the annual payment is for the next 30 years. It is part of a bigger picture that works, no matter how you look at it.”
But the additional borrowing costs push the county closer to the edge of its self-imposed $24 million ceiling for annual debt payments. Cobb Finance Director Jim Pehrson said a recent calculation with current interest rates showed projected annual payments of $23.5 million on a bond package of $386 million.
The new costs also raise the specter of other unknown expenses that may await taxpayers. In February, the AJC reported the county will likely need to spend at least $6 million on public safety upgrades, plus hire more officers and buy more patrol cars because of the stadium.
And there could be more costs on the horizon.
The additional borrowing costs identified by the AJC don’t include potentially millions more for outside attorneys and consultants needed to negotiate agreements with the Braves and provide other services related to the stadium deal. There’s also a traffic study that will be completed later this year that will determine if the $14 million the county has set aside for stadium transportation needs is enough.
Critics see these expenses as the cost of rushing through the deal without considering all of its ramifications. Commissioners approved the public financing plan just 12 days after announcing it. Experts say the deal is following the pattern of other large publicly backed stadium projects, where actual costs invariably exceed initial projections.
The county and team still must negotiate detailed agreements covering construction, transportation and operations at the new stadium. Those agreements include potentially millions of dollars of expenses and spell out who pays what.
“These agreements are all very critical in determining the ultimate social cost and private benefit balance of this ramrod stadium deal,” said John Vrooman, a Vanderbilt University sports economist. “The devil is still in the details, which have been shrouded in secret from Cobb County taxpayers and Atlanta Braves season-ticket holders.”
Despite public assurances about cost certainty, expenses always tend to be more than first anticipated with stadium deals, said J.C. Bradbury, a Kennesaw State University economist who studies public financing of stadiums. One recent study by a Harvard urban planning professor found that modern pro stadium and arena deals collectively cost the public $10 billion more than the initial forecasts.
In Gwinnett County, the Braves AAA stadium cost significantly more than the initial price tag. Like Cobb, the negotiations were conducted in secret. By the time the park opened in 2009, the cost had risen from $45 million to $64 million.
“These deals … always cost more. Always,” said Bradbury. “It happens on every single project.”
Elements of the Cobb deal are shifting for the Braves as well. The team has already missed a self-imposed deadline to choose a developer for an adjacent entertainment district that is a big part of the promised economic impact. And two weeks ago, one of the two development teams in contention for that project dropped out.
The Braves front office has not commented publicly on that setback, despite questions over how it will complete both the stadium and mixed-use development in time for the 2017 season. Team executives declined interview requests for this story.
One detail that so far has not changed: through the Cobb-Marietta Coliseum and Exhibit Hall Authority, the county will issue $92 million in bonds that the Braves will count toward the team’s investment in the project. Cobb plans to offset the debt service on that portion of the bond package with $6.1 million in annual rent payments from the team.
At current interest rates, Pehrson says the Braves rent will help pay for a portion of the $18.2 million upfront financing costs. The county’s gold-standard AAA bond rating will also result in a lower interest rate — and savings for the team over 30 years, he said.
“We get a tremendous rate for the Braves to take advantage of through our issuing the bonds [using] their revenue streams,” he said. “So it’s a win-win.”
Pehrson said the county was “conservative” in its calculation of revenues needed to pay off the debt. The county says it will generate enough money to cover the payments even without the increased property values and additional hotel room rentals that officials expect to result from the development.
“Any growth is a bonus,” he said. “That’s how conservative we were.”
Larry Savage, a persistent critic of the Cobb deal, has filed an ethics complaint against the four commissioners who approved the preliminary agreement with the Braves. When told about Lee’s reaction to the borrowing costs identified by the newspaper, Savage said commissioners should be concerned about every penny spent on the project.
“It’s like they went shopping for a house, and instead of deciding how much they wanted to spend, they just found out how much of a monthly payment they could afford,” Savage said. “The thing should have been fleshed out more before they closed the trap.”
A 50-50 deal?
Cobb officials faced a political challenge last November when they announced plans to bring the Braves to a county that is nationally known for its low-tax, conservative posture toward government. The financial details were spelled out in a 23-page Memorandum of Understanding, stating that the “total maximum county contribution will equal $300 million,” and that a total of $368 million in debt would be issued.
To help sell the deal, county and team officials released a one-page sheet that emphasized how Cobb’s costs amounted to 45 percent of the total, with the team picking up the rest.
But a closer examination shows the equation could shift when the additional public costs and other factors in the deal are considered.
Cobb’s $300 million obligation climbs to $318 million with the additional financing costs, which are $15.1 million for a year of upfront interest and $3.1 million to pay bond counsel and other issuance costs.
The deal also allows the team to reduce its front-end investment by up to $50 million. That provision was was not emphasized to the public in the November announcement. Under that scenario, the public contribution by the county is 48 percent to the team’s 52 percent.
Throw in the $18.2 million in issuance costs, for which the county is responsible, and the ratio becomes 50-50.
Some Cobb residents, when informed of the AJC’S findings, said the changing county costs are emblematic of a deal that was rushed from the start and was never fully explained.
“When they tell you one thing and they come up with another figure, you have to ask yourself … did they just low-ball it to make it more salient to the public?” said Lance Lamberton, president of the Cobb Taxpayers Association. “How could they not have known about that when the deal was presented?”
A major selling point for Lee and others pushing the deal has been the $400 million the Braves say they are investing in a splashy mixed-use development that the team says will include restaurants, shopping and apartments or condos near the stadium. But there is nothing in the initial memorandum of understanding signed last fall that requires the development for the stadium to proceed.
Other communities that have built stadiums with the promise of private development nearby have waited years to see it happen. In Gwinnett County, for example, the plan for the Braves AAA stadium that opened in 2009 included bars, restaurants, apartments and retail shopping nearby. Only the apartments have been built so far.
Lee said he still believes the Braves project in Cobb is a great deal for taxpayers, calling it “the best stadium deal in the country.” And he notes the Braves are responsible for cost overruns during construction.
“At the end of the day, we’re creating jobs, we’ve got significant investment in Cobb County and we’re going to have what I believe will be robust growth in (property values) as a result of this investment,” Lee said.
Legal bills unknown
The county and the team have also not spelled out who will be responsible for legal bills that the county will incur to draft and finalize all the pending contracts and agreements.
Cobb has hired four outside law firms to help in its dealings with the Braves, and to research a variety of other legal issues. So far, the firms have billed the county a combined $47,000 since November, according to invoices obtained under the Georgia Open Records Act.
That amount includes a $35,000 flat fee from the Thompson Hine firm that will negotiate the subsequent agreements with the Braves. The contract with Thompson Hine says the flat fee is for initial work from Feb. 1 through April 15. The contract says the firm will then provide the county with a “comprehensive and itemized proposal for legal services beyond” that date.
A county spokesman said last week that the proposal was not yet available.
In some cases, attorneys hired in other jurisdictions have run up bills into the millions.
In Minneapolis, the legal bill for Hennepin County was at least $2.8 million for outside attorneys to help in negotiations, land acquisition and bond work on Target Field, which opened in 2010. Pittsburgh’s local public sports authority spent at least $930,747 on legal fees in the development of PNC Park for the Pirates, which opened in 2001.
Closer to home, the Georgia World Congress Center authority, which negotiated a new downtown Falcons stadium, budgeted $2.5 million on outside attorneys and professionals. The authority was able to get the Falcons to help cover those costs.
Even after the initial memorandum of understanding was executed with the Falcons, there was still some $80 million in revenues at stake in the subsequent agreements, according to Frank Poe, executive director for the GWCC.
These stadium negotiations can be hard fought. Poe said the authority hired outside lawyers that had represented NFL teams “against public entities.”
“The team is going to come prepared,” Poe said. “They’re going to know what they want. And they’re going to know what they expect to get. And if you don’t come into it with that same expectation, and are willing to go toe-to-toe relative to what you’ve got to get out of the deal to support your interest because you’re so excited about having the team in your community, you can get hurt.”