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Kalahari President Todd Nelson (left), shown talking to Fredericksburg Mayor Tom Tomzak in 2008, is in agreement with the compromise that was reached. |
The Fredericksburg Economic Development Authority and Kalahari Resorts reached a compromise on bond fees yesterday, ending six weeks of negotiations and likely cutting Spotsylvania County out of the loop.
The compromise involved the EDA signing off on City Manager Beverly Cameron's plan for a fee on Kalahari's taxable bonds in exchange for the company agreeing to pay the standard fee on the tax-exempt issuance.
Kalahari attorney George Consolvo and Silver Cos. executive Scott Little said after the meeting that the compromise is acceptable to Kalahari President Todd Nelson, and that means Spotsylvania's EDA, which held a meeting yesterday to discuss the matter, won't be issuing the bonds.
The compromise allows the Fredericksburg EDA to set a precedent of demanding its full one-eighth of 1 percent annual fee to issue tax-exempt bonds while agreeing to a significantly reduced charge on the taxable bonds.
Little said Nelson was pleased with the EDA's actions, though disappointed that the EDA put off approving an amended performance agreement dictating the tax incentives Kalahari will receive from the city. Kalahari needs to resolve all contingencies before selling the private placement bonds.
The EDA will likely take up the performance agreement at its June 14 meeting. The EDA asked that City Council insert a provision into the agreement that would require Kalahari to reserve a certain number of jobs at its Celebrate Virginia water park, hotel and conference center for city residents.
Little said that requirement would be nearly impossible to enforce. An alternative suggestion by EDA members was to simply have a job fair in the city that gives Fredericksburg residents first crack at applying.
Though the final performance agreement remains a work in progress, the EDA and Kalahari now have a deal on the fee structure.
Kalahari plans to finance part of the complex with at least $30 million that Fredericksburg received for the project in Recovery Zone Facility bonds through the American Recovery and Reinvestment Act of 2009. The city has applied for another $5 million in these bonds through the governor's office and should find out by August.
Kalahari is solely responsible for paying the interest and principal on the bonds, which are issued through the EDA to give them tax-exempt status. That lowers the interest rate about 3 percentage points to 8 percent. Part of the savings are passed along to the EDA in the form of the bond fee.
Assuming the balance is $30 million, the city EDA will receive $37,500 a year from Kalahari on the tax-exempt bonds. The remaining portion of the financing involves Kalahari putting up about $30 million of its own money and selling another $240 million in taxable bonds carrying about an 11 percent interest rate.
Kalahari decided to also issue the taxable bonds through the EDA. That allows the company to work with the same Merrill Lynch bankers and lawyers on both bond issuances, and it also gives the bonds municipal status that creates small tax savings for Virginia investors. It may also allow Kalahari to avoid some costly reporting requirements that come with corporate bonds.
The city EDA will receive $125,000 a year for 10 years for issuing the taxable bonds. A little less than half of that will be paid by Kalahari; the rest will come to the EDA from the city, which will make the payments from a small part of the occupancy taxes generated by Kalahari.
The fee on the tax-exempt bond passed unanimously. EDA Chairwoman Dana Herlong was the lone dissenter on the taxable portion. Chris Hornung didn't vote on either because of his employment with Celebrate Virginia developer the Silver Cos.
The EDA will start receiving the fee on the tax-exempts after the bonds are sold. The fee on the taxables will start once Kalahari opens; the company could break ground later this year, and construction is expected to last about two years.
Once Kalahari opens, the EDA will be taking in about $162,500 a year in fees on the bonds--or better than $1.6 million over 10 years. The EDA's current budget is about $300,000 a year.
The EDA uses the money for economic development projects in the city, primarily grants to help businesses get started or add features. The EDA has a planning session scheduled for June 17, at which it will discuss how to be most effective.
Bill Freehling: 540/374-5405
Email: bfreehling@freelancestar.com
Fredericksburg EDA members expressed displeasure yesterday over the way City Council and then City Manager Phil Rodenberg handled a bond package that the University of Mary Washington Foundation used to buy a large home at the corner of William Street and College Avenue. The foundation bought the house at 1201 William St. in March 2007 for $2.1 million.
City Council that year passed a resolution allowing the foundation to run the bond through the Stafford-Staunton Industrial Development Authority, which was set up to handle financing for the Virginia Municipal League and Virginia Association of Counties. The UMW Foundation was charged a small upfront fee on the bond issuance.
Fredericksburg EDA members said yesterday that they had never heard about the bond issuance until very recently, and they were dismayed that City Council never consulted them. The EDA generates its fees by serving as the conduit for tax-exempt bonds.
"I feel blindsided," Fredericksburg EDA Chairwoman Dana Herlong said yesterday. "We're not being communicated to by council."
City staff said they'll research the matter and provide more information about the transaction at the EDA's June 14 meeting.
--Bill Freehling
Spotsylvania County's Economic Development Authority appeared willing yesterday to serve as a conduit for a roughly $240 million taxable bond issue by Kalahari Resorts, even though a decision made by Fredericksburg's EDA will likely make that unnecessary.
But county EDA members and an official from the Silver Cos. who presented the bond possibility to them were all adamant that the county's willingness to issue the bonds did not constitute "poaching" an opportunity from Fredericksburg, as city Vice Mayor Kerry Devine suggested in a letter to The Free Lance–Star.
"I would hope going forward that this would be the kind of thing that the city would look more kindly on," EDA member Robert Stuber said. "I think this would be a good start in regional cooperation for tourism."
"If the city's EDA were to help finance a large company that was to come to Spotsylvania, my response would be, 'Thank you, we'll send you a dozen roses next week,'" said EDA Chairman Steven Thomas.
Silver Director of Development Scott Little said his company approached the county because "I think we're very much at the end of the road with the Fredericksburg EDA," not the reverse.
"To be very clear, nobody came knocking from Spotsylvania on our door," Little said. "It was our company who came knocking to Spotsylvania."
Little also took issue with Devine's assertion that a four-month extension of the state deadline for issuing Kalahari's $30 million in tax-exempt bonds means governmental boards should have more time to deliberate.
"The cost of delay in all of these matters is astronomical," Little said. "That extension was not something to let us sit back and breathe."
Had Spotsylvania's EDA been tapped to issue the bonds, Kalahari was prepared to pay it the same annual fee of $57,375 for 10 years it had committed to Fredericksburg.
The city's EDA had not agreed to accept that fee until yesterday, at the same time Spotsylvania's EDA was meeting. Little also offered the following as sweeteners to convince the county EDA to help with the bonds:
—Emily Battle
