Private Stadium Funding Canceled
Deutsche Bank Deal Collapses

By David Nakamura
Washington Post Staff Writer
Thursday, February 2, 2006

A District government plan to use $246 million in private financing from Deutsche Bank to help build a new baseball stadium has collapsed, a political blow to the D.C. Council, which spent months pushing to reduce public investment in the project.

D.C. Chief Financial Officer Natwar M. Gandhi said the deal has been called off in part because the bank was seeking a $5 million fee to structure the financing arrangement. But another complication emerged yesterday when bank spokesman Ted Meyer said the bank had a signed contract with the District and remains entitled to the payment if the city uses the bank's strategy.

"We have an agreement with the city," Meyer said. "The fee involves over a year's worth of work in which we developed a structure that met the specifications laid out for us by the District."

Asked to respond, Gandhi acknowledged that the city had given the bank a "letter of intent."

About the $5 million fee, Gandhi added: "We'll have the lawyers figure it out."

Gandhi's decision means that the city's effort to find private financing appears all but over and that the city now plans to fund the entire stadium project -- recently estimated to cost $667 million -- through traditional public financing.

The council had spent three months in late 2004 debating the financing options before narrowly approving a budget of $535 million after Mayor Anthony A. Williams (D) agreed to seek proposals for private financing.

The decision not to use the Deutsche Bank plan could be politically damaging to Council Chairman Linda W. Cropp (D), who is running for mayor and who led the council's charge to find private financing.

Cropp could not be reached yesterday. Earlier this week, she said: "It was never my plan. It was a plan that was recommended by the CFO."

Deutsche Bank may still be involved in the stadium project as a potential large stakeholder of stadium bonds, Gandhi said. But it must compete against other banks that want to buy the bonds, he added.

Gandhi said that he will continue to seek private investment in the project after the council approves a stadium lease agreement with Major League Baseball. The 13-member council, which is sharply divided, is scheduled to vote on the lease Tuesday.

Under Deutsche Bank's plan, the city would have received a $246 million upfront payment in exchange for control of two annual revenue streams generated by the new stadium: $6 million in rent from the Washington Nationals and up to $24 million in concessions taxes.

Gandhi had said that the deal was preferable to traditional public bond financing because the city would be able to borrow less money in general obligation bonds on Wall Street. Furthermore, the city would have been able to collect $6 million less in gross receipts taxes from city businesses, Gandhi had said.

However, Wall Street bond raters said they would give the stadium deal an investment-grade rating only if the city collected the full $14 million in business taxes.

Because of that, Gandhi said, the deal became less desirable.

"The sense here is that if they were not giving you any advantage, then why would you pay a $5 million structuring fee to them?" Gandhi said. "This did not happen yesterday or last week, but over the last several months. We have been talking about a variety of financing arrangements that could most benefit the city."

The city received eight offers last spring, but Gandhi certified only two -- the Deutsche Bank plan and another from a group that proposed buying the rights to control curbside parking near the stadium. In the end, Gandhi recommended the bank's plan, and Cropp endorsed it last summer.

Cropp's critics, including those running against her in this fall's mayoral race, were quick to criticize her for pushing for a private financing plan that many had called untenable.

"The whole bank plan was to appease Linda," said council member Vincent B. Orange Sr. (D-Ward 5). "They finally told us it was going to cost too much."

Vincent Morris, a spokesman for Williams, said: "The mayor has said all along he'd look at private financing if the council felt it would save money. But if at the end of the day the District doesn't save money, then we won't pursue this option."

Jack Evans (D-Ward 2), one of the council's most ardent stadium supporters, said yesterday that he had been ambivalent from the beginning about whether to use the Deutsche Bank plan. Evans added that he was unaware whether the bank had a signed agreement with the city to be paid $5 million.

"They do a lot of business here. They would not want to sue the city," Evans said. "Nobody wants to do that. Whether they are entitled to anything, I don't know."