A Preview of the Arena Financing Plan

I had an extensive conversation with City Finance Director Don Herz yesterday about the potential financing of an arena project if it were approved by the voters next Spring.  I gave him a call because we had been running an unscientific poll on www.klin.com which indicated that our listeners would be opposed to going forward with the arena project if it meant a property tax increase by a rough 2-1 margin, and I wanted to get an update as to whether that sort of financing scheme was even a possibility.

Herz told me that the city is not yet ready to roll out the full financing plan because they’re still waiting on firm commitments from private contributors (read: IMG/ISG).  Herz confirmed to me that the city also still fully expects and plans to go forward with the project without any additional property tax burden on Lincolnites.  There will, however, still be a couple of  public financing tools that will likely be used. 

The first is the turn-back tax that was authorized last year by the Unicam (LB 912).  That bill allows the state sales tax on all new hotel/motel rooms within 450 yards of the arena to be turned back to the city over the course of 25 years.  So, the current plan is for the city to ask the voters to authorize a $25-30M bond next Spring.  Herz believes that bond amount will be easily retired during the pendency of the turn-back period (the conservative estimate is that there would be a 5% interest rate on those bond payments as well). 

The doomsday scenario would be the turn-back taxes not covering the bonded amount, forcing the city to make up for the shortfall in its future budgets.  I do note that in the Mayor’s press release linked above, the estimate was that about $700,000 would be turned back per year.  If that’s the case, it seems the city would have a hard time paying back $25-30 Million over the course of 25 years. For those without a calculator, $700,000 x 25 years =  $17.5 million (that number does not include adjustments for inflation).

The city would also likely use its authority to levy occupation taxes to bolster the turn-back revenue, particularly on restaurants, hotel rooms and rental cars.  This would likely be authorized by the City Council after (or if) voters approve the arena bond.  These taxes operate essentially as an additional sales tax and are used frequently in other cities around the country.

Of course, this all hinges on IMG/ISG wanting to play ball.  Herz told me that he’s hopeful we’ll know more about IMG/ISG’s role “very soon”, but in talking to the Mayor today, it’s clear he still doesn’t anticipate rolling anything out until this fall.  I think we all know that if IMG/ISG decides it’s unwilling to fund/own/be on the hook for profit and risk, this arena isn’t going to happen. 

That’s a little preview of what I anticipate the Mayor and Dan Marvin, the new arena coordinator, will be rolling out in the coming months.  I wonder if this changes the way the voters will look at the arena issue. Perhaps they’ll now feel more comfortable with the taxpayers’ role in financing this project.  Further, even if folks will be comfortable with the financing, there are still certainly plenty of criticisms to be addressed.  After bringing this up today, I had multiple calls and emails from listeners who don’t necessarily have concerns about the taxpayer burden but still think that the Haymarket is not the place to locate the arena.  That one baffles me a little bit, but we’ll take that conversation up another time.

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One Response to A Preview of the Arena Financing Plan

  1. […] News on the Arena Financing Plan About a month ago I had an extensive discussion with City Finance Director Don Herz to try and get as much information as I could about how the […]

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