The headline from today’s AJC says it all:
Underestimating expenses is a common “mistake” for publicly-funding sports stadiums. It hasn’t even been two months since Gwinnett County announced that it was planning to build the Braves a $45 million stadium and hand the team a majority of the revenues; yet, already the government has announced its first cost increase.
Bonds sold to provide $33 million in funding for the project will carry a fixed 6.25 percent interest rate, up from the 5.95 percent rate county officials had projected in the financing models made available to the public last month.
The rate changed because of market conditions, Finance Director Lisa Johnsa said. Buyers bid on bonds and the seller accepts the best available rate.
Johnsa said Tuesday that she did not have immediate access to documents detailing the interest payments and could not say how much the change in rates would increase annual debt service payments on the project.
“It’s a few basis points higher than we were hoping for. It’s still something we can manage,” she said.
First off, I don’t know where the 5.95% figure comes from. In the feasibility study, the county anticipated an interest rate of 5.5%. With an interest rate of 6.25%, this means that the cost estimate I used for my analysis in the AJC understated the county’s yearly cost burden by $190,000. That increases the annual tax burden to about $1 more per Gwinnett County household. In total, it raises the county’s total 30-year expenditure nearly $6 million.
It is also not surprising to see county government officials continue to hush up details that are too important for them not to know. Ms. Johnsa couldn’t explain how the change in rates would impact annual debt payments? I think there is a better chance that a group of high school seniors all legitimately forgot their IDs in their cars when ordering a round of banana daiquiris at Bahama Breeze.
While the actual computations are more complex, you can get an idea of the change in expense from an online mortgage calculator. Here are estimates for three interest rates: 5.5%, 5.95%, and 6.25% . There is no doubt that Ms. Johnsa was well aware of the differences when asked, but it is good policy to keep your mouth shut when you are raising taxes or cutting government services.
When the deal was announced, we were told that the project would pay for itself from day one; however, as each day passes, the government asks taxpayers for more assistance. This isn’t going to be the last cost overrun.
Also, I would like to point out how easy it is for Gwinnett officials to get away with this. The account of the bond approval in the Gwinnett Daily Pompon doesn’t even mention the cost increase. Rah rah, Gwinnett is great!