The Stadium Squeeze Is On
here's a mad rush on for the Phoenix City Council to approve a $200 million downtown stadium. Between now and Tuesday, councilmembers will be subject to a last-minute razzle-dazzle to try to convince them that the deal--which has yet to be finalized--is really the best the city can expect to get and requires final council action now! The bottom line is to stampede the council into giving the go-ahead for the stadium this Tuesday without bothering to ask voters what they think.
Several councilmembers are quaking in their boots about making such a decision, especially with an initiative to clip the council's wings already on the October 3 ballot. The Voters Initiative Coalition proposal, if approved, would require voter ratification of major sports and entertainment facilities with a price tag of more than $3 million.
Councilmembers also are hesitant to rely on the unproved--and unprovable--assumption that interest rates (and, therefore, stadium costs) are going to go up if they don't act immediately. And they are also not pleased that city staffers and negotiators for the stadium deal have treated them like mushrooms, keeping them in the dark about crucial details while shoving a little bit of fertilizer their way as necessary.
Under such circumstances, placing the stadium issue on the ballot would be the safe political decision. But getting a downtown stadium may require more guts than political savvy: There is some evidence that the deal negotiated by the city staff is the best that Phoenix is going to get. And, for a number of reasons, any delay could cause the whole thing to fall apart.
In 1986 Congress finally closed the loopholes in federal tax law that allowed cities and counties to float tax-free bonds for a variety of projects, such as football stadiums, that really don't qualify as necessary government services. But lawmakers from Arizona inserted a "transitional rule" giving Phoenix until the end of this year to issue tax-exempt bonds for a stadium. These bonds carry a lower interest rate than those on which the interest is taxable. That translates into a lower cost for the city and the developer.
There are other problems with referring the stadium question to the voters. The deadline for adding items to the ballot is August 4, which in theory should give the council a few more weeks to act. But the council has scheduled its annual month-long summer vacation to start July 20. What's more, city staffers--with the help of their bond counsel--are arguing that the council will face higher interest rates on its tax-free bonds if it waits for voter approval in October.
A memo from Goldman, Sachs & Co. to city Finance Director Kevin Keough suggests that swings of more than two percentage points in interest rates on municipal bonds "have not been uncommon in recent years." And that, the memo says, could translate into an additional $50 million on the project cost.
Benjamin S. Wolfe, a Goldman, Sachs vice president, prepared the document after discussions with city staff. The staffers then turned around and shared it with the council, feeling free to add their own comments on how interest rates now are at the lowest they've been in years. The message to the council was clear: Waiting until October might mean more money.
But is the memo merely a ploy to scare the council into action? While detailing what might befall the city if it doesn't act "immediately," it never mentions what advantages there might be to waiting. And not everyone believes that interest rates are on the rise.
Moe Beren is an investment counselor with PaineWebber. He is advising his clients--the people who purchase municipal bonds--that they should buy now because interest rates are likely to go lower. In fact, Beren is going out on a limb and predicting that the prime rate, which affects all borrowing costs, could drop as low as 8 percent during the next year or two. That's a full three-percentage-point decline from current levels.
"Sure, there are going to be blurps in between, depending on what happens with the price of oil and in China," Beren explains. But the softening economy will force the Federal Reserve Board to ease up on the money supply, which will force interest rates down, he says.
(In fact, three days after Beren predicted lower interest rates, several major banks lowered their prime rate by half a point, to 10 percent.)
So why would Goldman, Sachs want to push for a final council vote now? The company doesn't make its money by giving advice to cities; it makes its money by selling bonds. City officials have promised Goldman, Sachs that it will get prime consideration when they choose companies to underwrite the $190 million in bonds. With fees now in the one-point range, a company that handled even a third of the bond issue would pick up more than $600,000.
Of course, if the question goes to the voters--who might decide they really don't want to pay for a stadium--
Goldman, Sachs walks away empty-handed.
But if the company is right and interest rates do go up, missing the chance to use tax-free bonds could kill the whole deal. Attorney Paul Meyer, the city's chief negotiator, says the numbers that will go to the council Tuesday are built on the assumption that the tax-free bonds can be sold at about 7 percent. "If interest rates go up two or three points, [Chicago developer] VMS Realty Partners might walk away unless the city picks up the additional cost."
As if the dire predictions of Goldman, Sachs weren't enough, city staffers dropped another small bombshell last week at a meeting of the council's sports subcommittee: The developer with whom they have been negotiating to pick up most of the construction costs won't take the time to work out the specifics until the city gives the formal go-ahead.
Meyer carried the threat by VMS Realty Partners to the councilmembers. "Understandably they have said that if the city council's decision is to submit the stadium project to a vote, then that, in their minds, cannot justify spending those resources and committing that time until after a vote," Meyer explained.
VMS' position is that the deal it is offering is so good, the city council should snap it up right now and not risk a rejection by voters, something that could happen quite easily given voter antipathy not only to the Cardinals and their high-priced tickets but to using tax dollars for any nonessential project. "There is no doubt the developer realizes that for the city council to be motivated to move forward without a [public] vote, the transaction presented to the city council is going to have to be as attractive as possible to the city," Meyer said. And it was clear he wanted the council to act now. "I am concerned that if we delay completing those negotiations . . . it will put us at a tactical disadvantage in our negotiations."
THE LAST-MINUTE RUSH seems a little ironic, given the long history of efforts to build a stadium in Phoenix. Way back in the 1970s, a local bid for a National Football League expansion team failed partly because the area lacked a stadium. Sun Devil Stadium was in existence, but Arizona State University wasn't as willing to accommodate pro football back then as it later became.
By the early 1980s, a cavalcade of NFL team owners had begun using the possibility of moving their teams to Phoenix to get better deals in their hometowns. Each time a new team owner came to town, the local yokels grabbed for the brass ring and ended up with nothing. Midway through this era, local stadium-hunting began in earnest when the city council, in anticipation of possible NFL expansion or a team relocation, finally began a search for the perfect stadium site.
To no one's great surprise, the search ended in downtown, then much in need of rehabilitation. The exact location selected by the council's consultants--
west of Seventh Avenue, south of Jefferson--remains today as the most logical location for the stadium. (By the time construction is completed, the site will be ringed by freeways. All-important traffic-flow to most stadium events will work against the daily commuter crush. Thousands of existing parking spots sit within mere blocks of the site. And the list goes on.) Once the location was selected, the city sought stadium designs. Among Phoenix's many baseline requirements for the stadium's design and construction, the most unusual was its requirement that zero (or very little) city cash would be required to get the thing built. Developers were encouraged to surround their stadium mockups with dazzling mixed-use projects, including shopping areas, hotels, condos, restaurants and office buildings, as a way to help themselves pay for the project.
A total of four development groups responded to the city's request for proposals. One group was led by Michael Blumenthal, a San Francisco developer. A second was led by Martin Stone, a wealthy baseball nut from the East Coast who badly wants to own a big-league team of his own. Third was former football star Bart Starr and former football executive Joe Foss. The fourth group was led by Honolulu developer Jo Paul Rognstad.
A city committee charged with evaluating the proposals decided Blumenthal's was best, Stone's second. At the time it was believed that the city's total cash outlay for this proposed development would be less than $10 million.
From the start, Blumenthal clearly was interested more in the potential of the mixed-use development surrounding the stadium than he was in anything athletic. Stone's stadium design called for a flashy retractable dome. The Starr-Foss group's desire to build several separate stadiums proved unacceptable to the city, and Rognstad's wacky plan, calling for a science-
fiction-scale pyramid thing (into which a sports arena and condominiums would be built) was never seriously considered.
Ultimately, the city's committee urged a Blumenthal-Stone merger, and in summer 1986 the combined groups began to negotiate a deal with the city. The sensitive negotiations were conducted in secret.
A few days after negotiations began, Blumenthal dropped out. In his place, Stone asked Kroh Bros., a national development and real-estate firm based in Kansas City, Missouri, to step in. Kroh lasted a few weeks more, until December 1986. By the spring of 1987, Stone had a third partner, Metropolitan Structures West, a Los Angeles-based heavy hitter.
In May 1987, Metro West, Stone, and the city reached an agreement about details of the stadium deal, and it was announced that the city's contribution would be parking construction and site improvements, at a cost of $20 million. Phoenix also would issue $60 million in bonds.
But in January 1988, Bill Bidwill moved to Tempe. Bidwill's Phoenix Cardinals would play at Sun Devil Stadium, and Bidwill would get a screaming deal from proceeds from those games. When Stone was pushed by city negotiators to get a formal commitment from Bidwill to play downtown--proceeds from premium seats and skyboxes sold for football games are considered essential to pay for this stadium--Stone dropped out of negotiations and began to look for a suburban location to build a ballpark of his own.
For the next year Stone hunted for a site. His first plan, to settle in south Tempe, was quashed by nearby homeowners. His second plan, to settle in the Salt River bottom, was drowned out by jet noise from Sky Harbor Airport. Stone's latest plan is to build on the Gila River Indian Community far to the south of town.
Bidwill finally signed an agreement a few weeks ago to play in a downtown stadium. Provided, of course, that his "deal" in the new stadium at least equals his take from ASU and that someone else pay off the multibillions he will owe Tempe and the university for moving out.
Metropolitan Structures West (Stone's former co-developer) maintained an interest in a downtown stadium deal after Stone's departure, but eventually dropped from sight to devote more energy to a major project in California, and because "they were concerned about a public vote," Meyer says. "They didn't say no. They simply made it clear they were going to have difficulty moving forward as fast as we wanted."
Meyer says VMS got interested in the deal six to eight months ago, but laid low until Bidwill's go-ahead was made public. When the Cardinals owner signed a semiformal agreement to play downtown, negotiations between VMS and the city steamed up, and quickly.
Thanks to the disastrous local real-
estate market, the mixed-use development that originally seemed so important to the stadium project has all but vanished. And since May 1984, the city's stadium-funding expectations have been altered quite a bit. In light of the $65 million civic ante now on the table, Phoenix's original goal of getting a freebie stadium seems rather, well, quaint.
Not surprisingly, history is being rewritten at City Hall. "I don't think there was anyone who was seriously proposing it could be built without public money," Meyer says now. "It was clear from the very beginning there was going to have to be a significant amount of city investment."
Says one well-connected stadium-
watcher: "The city has gone through an awful lot of education in the last three or four years. We started with a base knowledge of zero. Today we're in a much better position to say, this is what we want, this is what we need."
AFTER MORE THAN three years of talks, the rush to judgment itself wouldn't seem half bad if the decision makers really understood what's at stake. But knowledge by councilmembers of the specifics of the plan appears to be more the exception than the rule.
Councilmembers do know they gave city staff the go-ahead several years ago to find a way of building a stadium at Seventh Avenue and Jefferson Street. The council said it wanted a private developer to kick in most of the cash. Having made that decision, the council was quite content to let staffers handle the specifics. But a host of outsiders also was involved. There was the Mayor's Professional Sports Advisory Committee and the Major League Baseball Committee, both of which were involved in proposing options for the downtown site. Also sticking its neck in was the Metropolitan Phoenix Sports Alliance--consisting essentially of Pinnacle West chairman Keith Turley and Circle K chief exec Karl Eller--
which was busy negotiating its own deals with Cardinals owner Bill Bidwill.
That's not to say all the councilmembers were left in the dark. Councilmember Mary Rose Wilcox, in whose district the stadium will go, managed to stay briefed. And while she insists she hasn't made a decision, Wilcox also appears to be the chief proponent of having the council approve the stadium Tuesday without bothering with a public vote.
Wilcox won't say why she's the chief cheerleader for the project, or even acknowledge that as her role. "I'm not," she insists. "I'm the one with the most information."
And that's the truth. The rest of the council has been pretty much excluded from the process. Even Duane Pell, who chairs the council's three-member sports subcommittee on which Wilcox serves--the panel that's supposed to oversee the negotiations and make recommendations to the full council--
never got a briefing from the negotiators before last week. And he was not pleased.
"I understand why they have to be coy with you [reporters]," Pell says. "But it would be nice if they gave their game plan to the council." Pell contends that the staffers and others involved in the stadium negotiations have kept the council in the dark as much as possible. "They clue us in when they want something."
Linda Nadolski, the third member of the subcommittee, also got her first official look at last week's meeting. Worse yet, from her perspective, is that any council action is now only a week away and she still doesn't have much to work with.
"The way I see it, we have to choose one of three kinds of stadiums and one of four kinds of financing," she says. "And we really don't know how much it's going to cost."
And there's the rub.
At this point the council is being pushed to approve the deal with VMS for an open-air stadium to house both football and baseball. City funding would amount to $64.8 million; the developer would pick up the rest of the $200 million total cost in exchange for the rights to some of the profits.
The two alternatives presented to the council do not seem realistic, given their higher costs. One calls for the city to foot the entire bill for the football/
baseball stadium. The other floats the idea of an open-air baseball-only stadium, with the caveat that no developer is interested in helping the city on this type of facility. It also carries a price tag of nearly $110 million. The net result, the way the city staff figures it, would be an annual cost to the city of more than $11 million.
The figures, however, leave something to be desired. The most recent baseball stadium completed is in Buffalo, where for $43 million the city built a park to hold 19,500. And it's designed so that, for another $15 million, bleachers and an upper deck can be added to bring capacity to 45,000. Meyer, however, defends the $110 million estimate for Phoenix's baseball-only option. He says he used the Buffalo costs as a starting point, adjusted for inflation and then tacked on the cost of a roof over the stands, necessary, he says, to attract fans to sit outside in the middle of an Arizona summer. And, he says, the Buffalo figures don't include land acquisition costs, which are figured into the Phoenix estimate.
Clearly, the push is on for a combined stadium. Never mind that there's a quite serviceable football stadium in Tempe. And never mind that the Phoenix taxpayers will wind up subsidizing the move of Bill Bidwill's Cardinals from Sun Devil Stadium to downtown Phoenix.
The agreement signed by Bidwill and Turley of the sports alliance says a lot more than that Bidwill's bottom line will be at least as good as the deal he is getting from Arizona State University. It also stipulates that the stadium project will reimburse the Cardinals for breaking their deal with Tempe. That accord specifies that if the Cardinals use the practice field Tempe is building for them but decide to play their games elsewhere, the team must pay about $700,000 a year for 25 years to use the practice field.
The agreement between Bidwill and the alliance also requires the project to pay off ASU for its own losses if the team moves to downtown Phoenix, above and beyond the $700,000 per year field rental.
Phoenix Finance Director Kevin Keough says that additional cost is figured into the project's $200 million total.
And where is the money coming from? That's what Nadolski was complaining about in her reference to the four financing options. Sometime between now and Tuesday the council will have to decide who should pay for the city's share, which comes to about $7 million a year for twenty years, what with the cost of borrowing the $64.8 million in the first place. Tacking $1 onto the already outrageous price of Cardinals tickets would bring in only $1.2 million a year. If there's a baseball team in town, adding $1 to each of those tickets, too, would bring the total take up to about $2.4 million.
That means someone is going to have to be taxed.
Bars and restaurants already pay a 1.2 percent city tax. Boosting the rate to 2 percent would bring in $7.5 million. But the industry is already raising a stink, saying it won't benefit because folks who come downtown to watch a baseball game are interested in eating hot dogs and drinking beer at the game, not in fine dining before or afterward. More to the point, it says something that benefits everyone in Phoenix should be paid for by everyone.
And that leads to the question of taking the city's 1.2 percent sales tax rate (which is on top of the 5 percent state sales tax) and boosting it by just a hair. Raising the rate a negligible .05 percent would raise $5.5 million.
There's also the option of paying for the stadium with a hike in property taxes: A 10-cent increase would raise $6 million annually while costing the average homeowner about $7 a year. But a property-tax increase requires voter approval, something the city staff is trying to avoid.
ONE GNAWINGLY POSITIVE element in the city's stadium plan, and one of the few positive effects of the city's long stadium quest, is the actual design of VMS' proposed stadium: It is not a dome.
As proposed, the VMS stadium will be open-air. Fabric sheeting will cover seating areas, blocking daylong sun exposure, a key to lowering radiant heat during baseball games played at night. There are tentative plans to use cutting-edge outdoor cooling systems in spectator areas as well. Seating sections will move to create different configurations for baseball and football, creating ideal sightlines for both sports. Also, the playing field for both sports will be real grass.
It has been assumed by many that Phoenix's stadium search would end with a domed, multipurpose monstrosity. The participation of Keith Turley in late deal-cutting sessions--
according to Meyer, the dome idea has been kept alive in recent months primarily by the Metropolitan Phoenix Sports Alliance--was a sign to many that a dome was still in the works. After all, Turley's paying job is to maximize the profits for Pinnacle West, whose sole profit-making subsidiary is Arizona Public Service. It's no coincidence that the Houston Astrodome's annual electric bill is $4 million. The open-to-the-elements nature of the VMS proposal is a pleasant surprise, especially to baseball purists, Martin Stone chief among them.
Bill Bidwill, clearly, will play anywhere he can make vast sums of money. The location and design of whatever stadium offered up to him matter little, as long as the bottom line remains fat. Stone's motivation appears to be different. The more pleasant elements of VMS' design--no roof, no artificial turf--apparently were made with Stone in mind. And Stone confirms that VMS' design works for him aesthetically. If that downtown stadium is ever built, and he gets an expansion baseball team, Stone says his team will play downtown.
"I believe that one way or another, we will have a stadium in the Valley," says Stone, still an optimist on every baseball-related subject except a downtown location. "I believe that we'll have a major league team, in all likelihood a National League team. I think we'll start play in the season of 1993. I believe it will be an immediate success. I believe we'll take in over two million in attendance the first year, the second year and maybe the third year.
"Whether the stadium is located downtown or not, I don't know. I'm highly skeptical that they'll actually go forward in time. These guys are all proceeding, and nobody really talks very much to me about it."
When he bought the local Class AAA minor league baseball team (now called the Phoenix Firebirds) in 1984, Stone also bought the territorial rights to the Phoenix area for a big-league expansion team. The first of two rounds of expansion is expected to begin in about a year, and Phoenix is one of about a half-dozen cities considered to be prime candidates for expansion. Stone, of course, is the most likely local candidate for big-league team ownership if expansion occurs. (Should baseball expand and award a team to someone else, Stone stands to make a huge profit on his investment in the Firebirds--he's sure to be paid handsomely for his territorial rights.)
Baseball, as ruled by its franchise owners, almost certainly will not expand to Phoenix unless Phoenix has a solid plan to build a ballpark, Stone says, adding that his participation in stadium negotiations was motivated merely by his desire to own a baseball team. He figures that his personal out-of-pocket investment in a stadium for downtown Phoenix now stands at $1.3 million.
"If I really want to have a major league franchise, I've got to get a place to play," Stone says. "If Phoenix doesn't come up with a satisfactory place to play between now and the time they announce the expansion, then that's the end of our chances for at least the first level of expansion. They're not going to give us a franchise and pray that we have the ability to develop a stadium."
Stone believes that a city council decision to send the stadium's fate to a public vote would doom the downtown project. "If they wait for a [public] vote, I really don't know how they're going to make it in time," Stone says, adding that a negative public vote on a stadium might send an unfortunate signal to baseball's ruling owners. "If baseball were sent a message that the people of Phoenix are not willing to support the idea of a stadium, I think baseball would just look elsewhere for a franchise. So, in a way, the idea of a vote scares me."
Unwilling to gamble his chances for a ball club on either the Phoenix City Council or Phoenix voters, Stone meanwhile is proceeding on stadium discussions with the Gila River Indians. Without identifying them, Stone claims he's lined up yet another team of solid development backers. "We think we've made some good progress on [a Gila River stadium]," he says. "I think it's an excellent location. We have an idea of a design, but we would only now be starting to put together sketches.
"[Phoenix] let all this time elapse with me out there scouring around, trying to develop an alternative site, and they let it go this far without seeming concerned. They kept stalling and stalling and stalling, and now they're to a point where they may well have pushed themselves into a corner from which they cannot successfully emerge."
AS CITY COUNCILMEMBERS duck for cover in the next few days, Stone's worst fears--a public vote on a downtown stadium--move closer to reality.
Councilmember Pell's feelings about the way the deal has been handled is likely to translate into a "no" vote for an immediate go-ahead on the stadium. "I'm a little leery of anything that's rushed this way," he says. "I'm as big a proponent as there is for doing something on this. But we have a history of things being crammed down our throats."
Councilmember Nadolski also is a "no" vote. Only part of that has to do with the last-minute haste of the job. She's not convinced that Phoenix needs an expensive football stadium, particularly with a quite serviceable one only several miles down the road in Tempe. Nor is she swayed by arguments that a downtown stadium will bring massive economic benefits to Phoenix that it isn't already getting from having the Cardinals play at Sun Devil Stadium.
The presence of the sports facility initiative on the October 3 ballot also has scared others into deferring the stadium issue to the voters. "There's obviously a lot of feeling in the community that we're not voting the way they would," Councilmember Bill Parks says. "There's all kinds of conversation that the public would vote it down. Well, if they vote it down, who can complain?"
Other councilmembers are willing to bite the bullet.
"If someone presents me with a package with the right numbers and the right source of revenues, I might vote for it," says Howard Adams. But the upcoming initiative has put the fear of the Almighty into him, too. "People are taking back government," he says. "This may not be the time."
Even Mayor Terry Goddard has had to second-guess his own rhetoric that the council is elected to make tough decisions.
On one hand, Goddard says, the complicated nature of these kinds of joint venture agreements and the need to finalize them in order to freeze the numbers suggest that unilateral action by the council is the best course of action.
"On the other hand, if ever there was a proposition in the public interest about which voters have a good basic understanding, it is the question of a major league sports franchise," the mayor says.
So will Goddard vote to spend the money Tuesday if he thinks the city is getting a good deal? "It would have to be that good," Goddard notes.
Of course, the entire discussion of a vote could be moot. While the city and VMS anticipate a federation, Darth Vader lurks just across the river. The latest reports say that, while there's a general understanding between the city and VMS, there's still the loose end of Bill Bidwill.
For the VMS stadium proposal to work, the company must make good on the sweet deal that Bidwill has already cut with the sports alliance. But the developer and Bidwill have yet to shake hands on exactly how that will be accomplished.
"I have yet to see everyone sitting at the table and nodding their heads in agreement at the same package," Goddard says.
The lack of an agreement by Tuesday doesn't mean there won't be a stadium. It does mean, however, the council may still have to vote that day or the day after--before their vacation begins--
whether to refer the whole issue to voters in October. And if they don't do that, it means they'll have to make the decision themselves sometime before October 3, when a possible passage of the initiative would take the decision from their hands forever.
It annoys Goddard a bit that Bidwill's demands are a sticking point. And he's aware of the negative reputation Bidwill has among some sports fans who see him as not only arrogant but greedy in his ticket prices. But the mayor is playing the hand that he's been dealt.
"Who else is there?" he asks. "I don't see any other NFL owner in Phoenix. It's a question of being the only game in town."
And Goddard has to deal with Bidwill to get what he really wants.
"What I'm in this to accomplish is a facility for major league baseball," Goddard says. And all the city's number crunchers say that a baseball-only stadium is a money-losing deal. But a shared stadium has football footing much of the bill. So it's a package. And that means doing whatever it takes to move Bidwill and his team downtown. "It's kind of a bank shot: You've got to hit something else to reach your goal."
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