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Kalahari is seeking financing for a proposed water park resort in Fredericksburg similar to this one in Wisconsin. |
BY BILL FREEHLING
Virginia Gov. Bob McDonnell has allocated another $5 million in tax-exempt bonds to help Kalahari Resorts finance a water park in Fredericksburg's Celebrate Virginia.
A formal letter will likely go out today from the governor's office to Fredericksburg officials, said McDonnell spokeswoman Stacey Johnson. Fredericksburg City Manager Beverly Cameron received preliminary word about the $5 million allocation late last week.
Kalahari will be solely responsible for the interest and principal, but the tax-exempt bonds carry an interest rate that is about 3 percentage points lower than a taxable issue. The extra $5 million could save the resort about $150,000 a year in interest payments.
"It's big for them," Cameron said.
The Recovery Zone Facility bonds are part of the American Recovery and Reinvestment Act of 2009. The tax-exempt bonds are for private projects in areas under economic stress.
Kalahari got another $25 million in RZF bonds this past January on one of Gov. Tim Kaine's last days in office. That allocation has shaped the Wisconsin-based company's financing plans for a water park, hotel and convention center.
The project would cost about $260 million, but Kalahari wants to borrow more that that to cover early interest costs.
Numerous other projects in Virginia also received access to the RZF bonds. The additional $5 million comes from projects that didn't end up using the financing.
The city has requested yet another $5 million from McDonnell's office and expects to find out about that by August.
The city has also asked McDonnell's office to extend the deadline for when Kalahari must issue the bonds from June 15 to Oct. 31. Federal guidelines state that the bonds must be issued by the end of 2010.
Representatives for Kalahari and Celebrate Virginia developer the Silver Cos. met with McDonnell yesterday.
To receive the tax-exempt status and the resulting lower interest rate, the RZF bonds must be issued through the city's Economic Development Authority, which has been deadlocked on the issue of what fee Kalahari should pay.
The EDA's standard fee is one-eighth of 1 percent of the loan balance. Kalahari has agreed to pay something very close to the EDA's standard fee on the tax-exempt issuance, but has asked for a significant reduction on the much larger taxable-bond package.
The EDA meets May 24 to discuss the fee on the tax-exempt issuance. City staff consider it crucial that the matter be resolved at that time if the June 15 deadline isn't moved.
Kalahari has agreed to pay the EDA 10 annual payments equal to one-eighth of 1 percent of the starting balance on the RZF bonds. So assuming a $30 million balance, Kalahari would pay the EDA $37,500 every year for 10 years--for a total of $375,000 that the EDA could use on economic development projects in the city.
The bonds would likely be non-amortizing, meaning the principal wouldn't be paid until the end of the loan period. The EDA's typical fee structure assumes an amortized bond in which the loan balance drops annually.
If Kalahari's tax-exempt bonds are amortized over 20 years, the EDA would receive a larger total amount. But Kalahari's proposal would benefit the EDA in that the group would receive the money in the first 10 years.
Kalahari's financing plans also call for the resort to put up $30 million of its own money and issuing another roughly $235 million in taxable bonds that would also go through the EDA.
Kalahari may end up issuing the taxable bonds through a different EDA--perhaps Spotsylvania County's or the IDA of Stafford County and Staunton (which issues bonds for the Virginia Municipal League and Virginia Association of Counties)--if it is unable to agree on a fee structure on that part with the Fredericksburg EDA.
On Friday, the city EDA failed to pass a compromise plan by Cameron that would have yielded the EDA $1.25 million over 10 years paid out of the occupancy taxes that Kalahari generates. About half of the payment would have come from Kalahari and half from the city.
City staff this week are focusing efforts on the tax-exempt bonds because of Monday's meeting and the looming June 15 deadline.
Bill Freehling: 540/374-5405
Email: bfreehling@freelancestar.com
