Yes, We Can afford a New Arena

The City of Rapid City currently enjoys a AA credit rating. This rating is given to cities such as ours for historically demonstrating responsible bonding/borrowing/repayment for projects Credit Ratingshistorically. Cities in South Dakota do not get bank loans, they sell bonds through an underwriter in order to create funding. There are generally two types of bonds to be used in this scenario:

Revenue Bonds

Revenue Bonds: The City sells bonds through an underwriter to create funding for a project. The City is responsible for paying the principal and interest to the bond holders through a trustee (usually 1st National Bank). If the City fails to pay the bonds, the bond holders sue the City.

Certificates of Participation

Certificates of Participation (COPs): The City sells bonds through an underwriter to create funding for a project. The City is responsible to pay the principal and interest through a lease agreement with a trustee (usually 1st National Bank). The trustee is responsible for paying the principal and interest to the bond holders. The trustee in this case is regarded as a lessor and the City is a lessee. If the City fails to make the payment, the project, in this case the arena, becomes the property of the Trustee. Similar to a person securing a bank loan for a car or a home and then failing to make payment. There is a repossession or foreclosure.

It is important to note that certificates of participation were used to fund, in part, the original Civic Center campus. Also, the state of South Dakota uses only certificates of participation when bonding is necessary for large projects. This is a legitimate and necessary funding mechanism and is not a “scheme” as two of the former mayors, Alan Hanks and Jim Shaw fondly referred to it. More importantly, the City has the ability to fund the entire project through cash down payment and revenue bonds. The decision of what bond types to use has not been made, and will not be made until it’s time to access the funds.

In 1972, voters approved a one-half cent sales tax to be used to build the Civic Center complex. At that time, the fund generated less than $1 million annually. When the Civic Center was paid off, the tax reverted to the citizens. Former Mayor Ed McLaughlin put the issue back on the ballot and Rapid City voters approved reinstating the tax in 1992. The new version of the ½ cent tax became known as the vision 2012 fund. In 1995, this fund generated $3.5 million annually. In 2017 the Vision Fund generated $12.8 million.

In March 2015 voters denied the City’s attempt to build a new 19,000 seat arena for $180 million in construction costs. There was no alternative plan at the time. In January 2016 the Civic Center Resolution Task Force was formed and charged with investigating options for moving forward with the Barnett Arena ADA compliance and marketability issues. Approximately one year later, the task force submitted their findings to the Mayor’s Office. We then put the findings into a presentation and began engaging the public on this important issue.

The funding mechanism consists of using just over 50% of the annual Vision Fund revenue collection. An annual bond (debt) payment of $6 million was chosen because it’s affordable and allows us to continue to fund important community projects with the other half of the fund. It also provides an important barrier in the event of a major recession.

Since early 2016, and in anticipation of an upcoming large expense, the City has been able to save $25 million in vision funds. The new arena being proposed will cost $130 million, and will include a 20% down payment. The City seeks to sell bonds through an underwriter for a maximum of $110 million in bond proceeds and will be paid over an anticipated 30 year period at $6 million annually.

One of the common concerns heard from citizens, is that the City should be putting this money into road repairs rather than a new arena. For perspective, please understand this:

  • The City’s annual operating budget is approximately $166 million.
  • The City will spend $180 million (same cost of the arena principal and interest financing) on roads and infrastructure over the next 6.5 years

Over the 30-year financing period, the City will make payments on the new arena, but it will also spend $1.16 billion on streets and infrastructure. The City has a need and responsibility to balance its interests, just like we all do. Putting all the money into one priority at the expense of other priorities is no way to live, no way to do business and no way to run a city government. Your city council understands this and I understand it. Not everyone can be made happy.

The Civic Center and other attractions bring outside money into our economy; without outside money, the economy cannot grow. This plan has never been pitched as the economic “magic pill” but it is an important plan for the long term well-being of the Civic Center, which is an important cog in the local economic wheel.

Also important to note: there will be no new taxes required to fund the arena or the ongoing Street and infrastructure expenses.

 

 

The Anti-Gossip Column

“Words have no wings, but they can fly a thousand miles”  ~ Korean Proverb

It should be no surprise to any of us: facts cannot easily be distinguished from fiction, after all, fiction is passed on at a greater rate than facts. Here are some recent Two Cents comments from the Rapid City Journal, and, my response:

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FALSE: A quick look around the nation tells us naming an arena after a mayor is highly unusual. Don Barnett is a man who led the charge for the original Civic Center complex and helped Rapid City recover from the 1972 flood. He was deserving of naming the current arena after him.  Naming the next arena will be a business arrangement, not a political one. Money talks, and we will be looking for advertising sponsorships.

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Great idea.  Wish we would have thought of that. A new manufacturing plant is being planned and construction will start this Spring. It will involve 10 acres of land, 100 jobs right away and 200 within a few years. We have a team of folks recruiting, incentivizing and helping to facilitate smart growth. The government cannot create jobs, but we can create an environment where jobs can be created. It’s not a matter of EITHER an arena or bringing in companies, we can have both. Also, don’t forget agriculture and tourism is who we are. These industries have helped Rapid City and South Dakota as a whole, become and stay successful.

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No one EVER said the building was about to collapse into a heap.  Yes, additions and improvements have been a part of the Civic Center complex.

Renovation history

Maintenance and upgrades are necessary in facilities such as this. These expansions were driven by demand; the renovations driven by age.  You will note the Barnett Arena was never upgraded.  It’s structure is the problem more than the aesthetics. It is an old building, it looks old, it feels old and the architecture is obsolete.  The former Rapid City Auditorium located at 7th and Quincy Streets from 1928-1973 was demolished in its 45th year.  The Barnett will be repurposed as a multi-purpose room to compliment the new arena and complex.

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The City spends $25-$30 million per year on the things mentioned in this comment. In other words, the amount spent on roads and infrastructure every five years is $130 million. The amount being requested to build a new arena that will last another 40 years is $130 million.  It’s not a matter of having either an arena or road and infrastructure repair, we can have both. It’s a balance.

The person writing this comment believes the Civic Center is a drain on resources.  FALSE: The Civic Center funds 75% of its operating and capital expenses with revenue generated within the complex. The other 25% comes from the Gross Municipal Receipts tax, or the BBB (bed, booze and board) tax – a 1% tourism tax created for the operation of event centers and for promotion of our City. No general fund money is used to subsidize this operation. These false claims made by people who don’t care to ask the questions are destined to be the downfall of Rapid City. Ask the questions!

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Not only is this person misinformed, but they believe “cooking the books” is going on. The entire Civic Center complex has been brought up to ADA standards. On-going maintenance and upgrading has and will continue to occur at the complex. “That magnificent building” will not be demolished. No one ever said the building would be demolished. The proposal is to add a new arena, next to the Barnett Arena, repurpose the Barnett Arena into a multi-purpose room to compliment the new arena and complex. The only thing being proposed is a new arena. Nothing will be demolished! Am I repeating myself?  Yes, I am, and I am hoping the person who wrote this comment, and others like it will be open to hearing the truth.

Let’s face it, rumors and gossip travel faster than the truth. It always has and always will. My only hope is, for us to be open to hearing the truth as much as we are open to hearing rumors.

For those who have not seen a presentation (all of these two cents authors) here it is: www.barnettarena.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Civic Center Fix Won’t Defund Streets

two cents photo 4-1-17This recent submission to “Your Two Cents” is from a writer who believes the Civic Center Arena proposal (not yet presented for consideration) will take much needed funding away from street repairs. The writer is incorrect, but not without basis.

The proposed replacement of the Barnett Arena, rejected by voters in 2015 caused a whirlwind of rumors and false information. Once out, these rumors became the common theme of communication surrounding the proposal. One such rumor, was that street or other infrastructure repairs would be placed on hold for a number of years. Anyone hearing that rumor had reason to question the City’s ability to fund such a project as the $180 million arena. I won’t try to correct the last proposal’s issues but I will share a preview into the current, yet incomplete proposal: (1) No money designated for street improvements will be used to fund modifications to the Rushmore Plaza Civic Center, and: (2) Taxes will not be raised to fund the modifications. The funding will come from 50% of the current “Vision Fund” tax collections which is a half-cent sales tax approved by voters in the 1970s and again in the 1990s. The fund has contributed to many community projects ranging from swimming pools to parks to soccer fields. This fund has not traditionally been used for streets and was originally used to build the Civic Center. We have received a debt service projection for scenarios including repairing or replacing the Barnett Arena, each with annual payments of $6.5 million or less. There is much more to come on this subject.

Finally, the writer speaks of a “$25 million shortfall” to fix our streets. This phrase came from a City Council meeting during which Councilman Jerry Wright presented a report on the status of infrastructure funding and concluded that we were $25 million behind in achieving a realistic repair and replacement plan. No one can disagree with the report from an engineering or technical standpoint, but the overall goal of perfect streets is something needing more discussion. Without doing any real math on the subject, it seems pretty clear that in order to raise an additional $25 million for streets and infrastructure without raising taxes, we would have to eliminate parks and pools, all recreational operations including golf courses, maintenance of bike trails, eliminate the library, sell the Civic Center, de-fund code enforcement, risk management, community development and much of the Planning Department and strip our police and fire departments to the bare minimum, not to mention ending funding to all arts and other community assets that exist to enhance our community and its members. Then, voilà! enough money to pursue perfect streets!

Street and infrastructure funding is a concern in Rapid City, just like it is in every city in America. Rapid City will continue to fund street repairs and is actively looking for ways to divert funds from lower priority programs as one means of doing so. In the meantime, see the pothole or crack in the road as money spent on other important community needs.

Citizen input is needed, but uninformed criticism cannot help solve this issue.