Problems with the Maritime Park

Elected and appointed public officials have raised legitimate and important questions about the future of the CMP facility. In doing so, they have been vilified. For that responsible conduct of these officials the people who didn’t get what they wanted complain that it is hard to do business in Pensacola. Thank goodness it is. These officials are representing the interests of the taxpayers. They have no obvious conflicts of interest as others do. They don’t run full page ads or hand out T-shirts to decide public policy. They have simply affirmed that public policy is not for sale to the highest bidder. It takes courage to do so in the face of a bandwagon mentality which conveniently ignores some very basic concerns. We should thank them. If we don’t support them why would anyone want to serve their community when their honest valid concerns over taxpayer welfare are mischaracterized as obstructive and baseless? It might help to see how we got to where we are now.

A great deal of confusion surrounds the Community Maritime Park and its structure. We know some of the facts which have raised basic questions about its future.

It is now obvious that the original concept for the Trillium site, which was approved by the public, is far different than what has been built there. This original concept was the reason our firm donated valuable parcels of property within this site to the City. Nevertheless, it does little good to lament what was not built or that public approval was for an entirely different plan. It is what it is—a baseball park and it’s our baseball park, not the Blue Wahoos’ baseball park.

In order to obtain financing for the reclamation of the site and the building of the baseball facility, the City borrowed $58 million. To have sufficient collateral to issue the bonds, the City pledged property tax revenues from within the Community Redevelopment Agency (CRA) district. The CRA is a district of the City of Pensacola where property taxes generated from within that district are supposed to be used to enhance that district only. Virtually all of the CRA revenues over operating expenses (approximately $4 million annually) are now needed to pay the annual debt payments for the new baseball stadium bonds and the $1.3 million annual payment to the ECUA for the relocation of the sewer plant. There is no money for anything else for the foreseeable future. In 2017, repayments of the bond principal will begin, which will be a further expense of the CRA. At present, only interest on the bonds is being paid.

So why doesn’t the City simply run the facility instead of the CMPA?

Because government-backed financing was involved utilizing New Market Tax Credits (NMTC). These credits were established by the government to encourage investors to assist low income area businesses. To qualify, an independent entity had to be established as a low income business, and the business entity (Community Maritime Park Associates, or CMPA) has to exist for seven years to operate the baseball park. The NMTC allows for approximately 40% of the interest paid on $12 million of the bond debt a dollar-for-dollar IRS tax credit to the purchasers of the bonds spread out over 7 years. The City of Pensacola cannot take over and run the baseball park facility for seven years from the issuance of the bonds. A suggestion that the CMPA should just do what the City Council directs would subject the NMTC to be disallowed by the IRS as a fictional corporation existing in name only. The governance problem we now have with the CMPA was caused by the financing plan that the City elected to use.

The CMPA has no obligation to pay the bond debt; that is the responsibility of the CRA, which, in reality, is actually the taxpayers. The CMPA has no incentive, no obligation, and no business concern whether the $58 million bond debt is paid or not paid. The reported losses the CMPA is experiencing is because they are collecting so little lease revenue that they can’t pay the basic expenses to operate the baseball park facility, can’t repay the $500,000 they borrowed from the CRA for the amphitheater, and have little chance of even breaking even for years to come. Their in-the-red status is not because they are making payments on the bond debt — they simply do not have enough lease revenue to pay operating expenses.

Where do the Blue Wahoos fit in?

First, the lease with the CMPA is not with the Blue Wahoos. The lease is with a shell entity. Had it been with the Double-A franchise team, a default by the team would have the collateral of the team value to pay the default. Although the Blue Wahoos derive benefit from the lease, they are not obligated financially to guarantee the lease. A shell entity (meaning it has no assets and is simply a legal vehicle by which the owners of the Blue Wahoos are protected from having any financial obligations on the lease) was created by the Blue Wahoos owners. The CMPA entered into a lease with this shell entity to allow it to use the baseball facility for the Blue Wahoos to play home baseball games. Neither the CMPA nor the City of Pensacola have any ownership or financial interest in the Blue Wahoos. If this operating shell entity defaults on the lease to the CMPA, there is no solvent responsible party who could be held responsible for the lease default. The Blue Wahoos are not named as tenants on the lease, so neither the Blue Wahoos nor their owners would be liable for the lease default. If the owners of the Blue Wahoos decided to move the franchise tomorrow, there is no solvent entity that the CMPA or the City could hold responsible. There is no other financial security for the baseball park lease that the Blue Wahoos benefit by using. It would be difficult to find a responsible business person who would have agreed to lease this facility to a shell entity with no collateral or security for the lease obligation. Nevertheless, the City did so under the former weak mayor form of government.

So in sum, neither the owners of the Blue Wahoos, the Blue Wahoos, the CMPA, or any other person or entity has any obligation to pay the $58 million dollar bond debt over the next 30 years — except the taxpayers.

What does the lease (that benefits the Blue Wahoos) with the shell entity provide?

A base lease of $175,000.00. This is for the use of a $40 million facility (the minimum allocation for the actual stadium portion of the $58 million total cost). There is also a surcharge on ticket sales that the Blue Wahoos owners pass on to ticket purchasers. The basic operating expenses of the facility, utilities, maintenance, and insurance payments are approximately $700,000.00 a year and the Blue Wahoos are not responsible to pay any of it (one reason we see stadium lights on all the time). So the shortage Mr. Oliver reported in a recent review of CMPA finances is because the lease payment from the Blue Wahoos, plus surcharge revenue, does not cover even the basic variable operating costs of the baseball park. (And although it is not discussed here, the actual operating loss is likely greater.) The budget to build this entire complex did not include buying basic concession equipment. To solve that problem, Mr. Studer agreed to buy it so long as he or his shell entity could keep all the concession revenues.

This purported pubic multi-use facility also did not budget anything to build the amphitheater. It later was built from an unconditional donation made by Mr. and Mrs. Skip Hunter.

Since these basic operating costs exceed the lease payment from the Blue Wahoos, the CMPA needed additional revenue. They elected to give all the remaining days the park was not used for baseball games to the Blue Wahoos’ shell entity to lease for other purposes. The shell entity was to get 80% of the revenues that other renters were to pay to use the park. The shell entity was not being charged anything to sublet the baseball park on these other days. The CMPA in turn was to get 20% of the gross payment received from third parties renting the park. As Mr. Oliver’s report notes, the CMPA’s 20% share does not cover the variable costs of operation (utilities, maintenance, insurance, etc.), so every day that someone pays the shell entity to use the baseball park, the CMPA loses more money and the shell entity receives 80% of the gross revenues with no offsetting costs.

The shell entity that is controlled by the Blue Wahoos’ owners is now marketing the baseball park as a restaurant with multiple bars and with catering in competition with downtown businesses. A policy question that the City Council should address: does this pose a deterrent to other businesses locating within the City of Pensacola? Is it fair to private businesses that they should have to compete with a publicly underwritten competitor? Is this an acceptable use of this facility?

What is involved with the discussion about the YMCA?

One of the owners of the Blue Wahoos, Mr. Studer, has publicly offered to provide a $5 million pledge (although this was never made in a formal written offer specifying all conditions of the pledge that were to be included) toward the building of a new YMCA building. The offer was conditioned on the City leasing parcel 8 on the site to the YMCA. The problem with a not-for-profit entity leasing land on the site is it would produce no recurring annual property tax revenue, so the CMPA would derive no revenue other than a small annual common maintenance fee, and the revenue to the City would be limited to the lease or sale of the land (valued at $1.7 million). There was to be no due diligence time of evaluation to be provided to the CMPA or the City. The recent decision by the CMPA to reject the proposed lease has been most unfairly criticized. The CMPA was given a lease they had nothing to do with drafting one week before their meeting. They did what responsible people would do and what we would want as taxpayers. There is confusion over responsibility for leasing decisions, but that is caused by the convoluted structure of the CMPA and its relationship to the office of the Mayor and the City Council. That should been addressed in a sensible discussion before the arbitrary “take it or leave it” offer was made, but there was no time to do it. The public comments by Mr. Studer that it is difficult to do business in Pensacola because he didn’t get what he wanted may be true when a developer conditions what he wants with a “my way or the highway” choice as he did. Given that choice the highway may be the only responsible choice.

The master developer. There is none and that is a major problem.

The squandered money paid to the prior master developer is evidence of very poor decision making of the prior CMPA. How this person could have been hired after failing to be recommended by the consultants the CMPA hired is indefensible. Big hat, no cattle, he simply fooled the CMPA into believing he was capable of developing the site. He was not. Judge Collier at the time cautioned against hiring him, but he was ignored. After the master developer was terminated, the CMPA did not attempt to find a competent replacement. However, they effectively have a master developer now. The defacto developer is Mr. Studer. As such, he has unquestionable conflicts of interest between his own profit motives and the interest of the taxpayers to maximize revenues and the use of the site.

Parking

Many questions remain regarding how the available parking has been leased. There are approximately 370 parking places on the entire site. All have been leased to the shell entity operating the Blue Wahoos or allocated exclusively to a building Mr. Studer plans to build in the future (his long delay in honoring his agreement to build the building was through no fault of the CMPA or the City and as of this date construction has not commenced). There is no parking for anyone else who may lease a parcel other than on-site of the parcel leased. Are the parcels remaining on the site to be dedicated to non-income producing public uses, including additional parking? Or, are the site parcels intended for lease or sale to entities paying property taxes, and if so, how will parking be provided? Is there a move now to create public demand for “open space” and allow the exclusive use of the commercial portion of the park to benefit Mr. Studer and the Blue Wahoos? Is a demand being created for a multi-story parking garage (first requested by Mr. Studer but, rejected by the City) further obscuring public view of the waterfront? In short, what is the plan?

The naming rights

Why should a tenant with the lease that this tenant has procured also receive 50% of the revenues from “naming rights?” This facility belongs to the taxpayers, not to Mr. Studer or the Blue Wahoos or the shell entity with which the CMPA has elected to do business. The inclusion of that contract benefit to the Blue Wahoos owners is simply astounding. A 50% commission? And on what basis does the CMPA allow Mr. Studer to control the naming of our facility? The current CMPA is not responsible for this very questionable lease. It was agreed to by the former City Council manager under the weak mayor government that existed. The current City Council is not responsible for it either. Both have inherited a very bad deal.

Examining the premise that the baseball park would enhance the prospects for economic development

It is claimed that all these lease provisions, which are highly favorable to the Blue Wahoos, are justified because the owners of the Blue Wahoos decided to buy a baseball franchise and locate it here. If, however, no real economic benefit is resulting to anyone other than the owners of the Blue Wahoos, then how can these one-sided benefits be explained? The response may well be the owners of the Blue Wahoos just outsmarted and out-negotiated the CMPA. However, just because we have been outsmarted or out-negotiated in the past is not a reason to allow it to continue. It rings shallow for the Blue Wahoos owners to claim they want what is best for the City given the lease conditions they benefit from now. What would be good for the City would be some guarantees on debt payment and lease obligations for which we now have none. The owners of the Blue Wahoos have every right to want everything they can get that is best for them, but the taxpayers deserve the same vigorous advocates. It distorts the argument to suggest that motives cannot be questioned because the intention of the recipient of the benefits of the deal is claimed to be honorably motivated. Honor is assumed by all involved. However, this is a business deal and not a philanthropic undertaking.

What we need is a zero-based analysis of the real economic impact of the baseball park. We may rightly say we have the finest Double-A baseball park in the nation, but for whose benefit was it constructed? The irony is that the disastrously bad lease the City entered into with the Blue Wahoos’ shell entity has created the need for the persons who benefited from the lease deal to now be needed to help bail out the CMPA.

Master plan

The best evidence of the non-existence of a plan is the ad hoc decision to consider leasing parcel 8 to the YMCA as Mr. Studer demanded. There is no long term development plan, or at least not one that has been made public. Any suggestion that maintenance fees from other leases will make the CMPA solvent is wrong. At most the cumulative revenues would not exceed $100,000.00. Whatever the idea of the moment, it is counterproductive to run full page ads to pressure public officials when the public has very little understanding of the issues discussed here. It is our baseball park however. We own it and we are obligated to pay the debt. If the CRA can’t pay the debt the City has to pay it. Regardless, City tax revenues of the CRA or otherwise are now on the hook for the next 30 years. The lease with the Blue Wahoos shell entity is for ten years. In ten years it is likely major baseball park renovations will be required and no reserve fund has been established for the long-term refurbishment of the facility. No plan means a contingent taxpayer liability that we will face with virtual certainty has not been considered. It could be as bad as the contingent pension fund obligation.

What can be done?

1. Renegotiate the entire Blue Wahoos shell entity lease and require the owners and the Blue Wahoos to collateralize and guarantee the lease.

2. Suspend everything not committed until a master plan can be developed.

3. Hire an independent, competent master developer who has no conflicts with any tenant or developer on the site and who will be responsible for all leasing to third parties.

4. Prohibit a future transfer of the lease absent a prepayment of the remaining lease obligation and a participation in the payoff of the bonded debt.

5. People who want to do business with the government should respect the role of elected and appointed officials and their responsibility to the taxpayers

These discussions can and should be civil. When you want to acquire or have the use of public assets for your private use and profit, you can’t have a thin skin. It also cannot be a justification that a bargain basement deal on the baseball park lease is justified because of other private investments for which the taxpayers derive little benefit other than the receipt of property tax revenues. Public officials are also right not to confuse unrelated investments and philanthropy with public business. The question should be: does it make financial sense, despite all the charm and enjoyment it may otherwise provide? If it doesn’t now, how can we make it better?

Is the baseball park facility a good idea?

It is too late to ask. It could be good for the community, but it all depends on the plan. Currently it is being billed as a multi-use facility but is not being used as such. It has to be in the future, and that use may conflict with the interests of the owners of the Blue Wahoos.

How can the City best protect itself in the event the franchise is sold, the Blue Wahoos move, or the owners attempt to sell the franchise and we find ourselves in business with people we have never met (and might not like very much)? If this lease is assignable to another person, the franchise Mr. Studer owns has greatly increased in value. If so, why shouldn’t the taxpayers share in the profits if he sells the franchise and we have to honor the present lease deal?

It is not all gloom and doom, but we need to demand a plan. Every possible downside has to be considered in formulating that master plan. We have put all our debt allocation eggs in the baseball park basket, so we better make sure it succeeds.

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