elpasospeak

These articles from out of town sources paint a different picture of our ballpark situation than we get to see locally.

Not a pretty picture

This section from Bloomberg talks about the financial situation:

El Paso, Texas, which is cutting police overtime and holding some jobs vacant, will have to spend an extra $17 million on bonds to finance a minor-league baseball stadium after an initial attempt to sell the debt failed.

Goldman Sachs Group Inc. (GS) took over marketing of the debt this month after the mayor said Morgan Stanley (MS) couldn’t find buyers when interest rates were lower in June and July. The delay, during a period when local-debt yields reached the highest since 2011, means higher interest costs for the municipality of about 673,000 across the Rio Grandefrom Mexico, William Studer Jr., deputy city manager, said in an interview.

El Paso plans to use a higher hotel tax and general funds to help pay the debt. It joins localities from North Carolina to Oregon building sports venues to spur their economies. The ventures don’t always pan out, leading buyers to penalize the issuers. The city-formed development agency last week sold 25-year tax-exempt bonds to yield 5.95 percent, compared with about 5.05 percent on 30-year revenue debt with a similar rating, data compiled by Bloomberg show.

“It’s a lot of money they are having to pay out due to the risk involved,” said Lin Elliott, who oversees about $1 billion as investment manager at Texas Farm Bureau Mutual Insurance Co. in Waco. The bureau prefers holding bonds to maturity and wouldn’t buy debt for a minor-league franchise that may not last 30 years, he said.

Crap shooting with our money

An article in Governing talks about the gamble the city took with our money — and lost.

As it intends to do with most of the bond projects, the city broke ground on the new stadium in April by fronting its own money with plans to issue the bonds for the project soon after… El Paso offered its $63 million in revenue-backed stadium bonds the first week in July.

It was not good timing.

“It was sort of if anything could go wrong it did,” Wilson said. “Standard & Poor’s rated our [nontaxable bonds] double-A minus, which is pretty good. But when Detroit defaults on $18 billion subject-to-appropriation debt, all of a sudden everybody looks at the muni market a little differently.”

Faced with no takers, El Paso was forced to find another underwriter for the bonds and the council begrudgingly approved raising the interest rates on the offering. The limit was raised to 6.5 percent from the original 5 percent cap on the $48.7 million of tax-exempt debt, and to 7.25 percent from 5.75 percent for the $12.1 million taxable portion. The moves will cost the city an additional $17 million in debt repayments.

Speculating on a questionable deal

It was “the worst possible time to bring a speculative deal,” said Municipal Market Advisors analyst Matt Fabian, adding especially when the value of a minor league baseball stadium to El Paso is “questionable.” This summer, El Paso found a municipal market that had flipped 180 degrees from a seller’s market to a buyer’s market with little time to wait for a more favorable turnaround.

“You really never want that,” Fabian said. “You don’t want the issuer to be forced to sell – you never know what market conditions you’ll find and it was a very aggressive action on their part.”

They refused?  What kind of contract did you sign?

Again from Governing:

Wilson said the city could have waited out the commotion and issued the bonds this fall but “it didn’t seem prudent to do so because predictions are that rates will continue to rise.” She added that, in her view, “our lead underwriter was not as effective as they could have been and took us out twice in early July with no success and then refused to purchase the bonds when they couldn’t culminate the sale.”

Untempered

In any event, the complications have not tempered El Paso’s aggressive attitude as the city plans to issue more bonds at least twice this fall and again in the spring.

What part of this deal has been done well?  If we are going to take on projects like this we should at least manage them competently.

We deserve better

Brutus

FedUp and Reality Checker have  brought up good points questioning how our ball park costs can be so far different from the $50 million that we were promised they  would not exceed.

After all we have:

• the city manager
• a deputy city manager with experience from the Arlington stadium project
• a chief financial officer of the city
• the city engineer

all working diligently on this project for us.

In addition, we have some real professionals including:

• International Facilities Group — hired to be the owner’s representative — being paid up to $853,000 dollars.  Quoting directly from their contract with the city:
  • The Consultant acknowledges that the construction budget for the Project allocates THIRTY FIVE MILLION AND NO/100 DOLLARS ($35,000,000) for the award of a construction contract base bid, which is to include all features essential to the operation of the Project for its intended use …”
• Turner Construction who has done 25 ball parks according to this estimate available on the city web site.  4×3 Turner Construction v2 – 6_25_2012 (1).  Their estimate was $38,923.00.  They did not get hired to do the job but after having done 25 ball parks I would think that their estimate deserves respect.
• Populous, the construction architect.  They are being paid $3,820,680.00 to design the ball park with the same $35 million construction budget written into their contract.
• A construction company that has a contract with the city to build the ballpark with a construction budget of – $40,182,111.
• One of the owners of the sports group is ranked number 65 (according to their web site) of the top 300 building contractors.  Certainly they are experienced with cost controls and budgets.

I would not be surprised if some of these firms do not come to the city expecting increases in their fees, after all they were hired to build a much cheaper facility.

A contract is a contract

The public has been made aware of the various costs through city council entering into contracts.  Who has been driving the costs up?  By what authority have they been doing it?

We had an estimate from an experienced ball park builder totaling $38.9 million.  The city wrote contracts capping construction at $35 million.

Now we are at some number above $64 million.

The professional firms may have some liability here.  Their reputations might suffer also.  I doubt that they would make changes without direction from their masters at the city.

That leaves us with

The city employees are the ones that are most directly accountable to us.  City council should investigate to find out which of our people is responsible for this and then take the appropriate actions.

We deserve better

Brutus