A private financing plan being used by the District to help pay for a new baseball stadium project has the potential to cost city taxpayers nearly $60 million in lost revenue, according to a new study by the DC Fiscal Policy Institute.
The city is in the final stages of negotiations with Deutsche Bank on terms of a deal in which the bank would pay $246 million toward the $535 million stadium project. In return, the bank would receive control of two revenue sources from the ballpark: the taxes from concessions and the annual rent payment by the Washington Nationals. Those revenues are expected to total about $18 million per year throughout the 30-year stadium lease.
District officials have endorsed the deal for two reasons. Chief Financial Officer Natwar M. Gandhi said the plan will reduce the city's need to borrow on Wall Street, keeping debt lower and leaving the District more flexibility to borrow for other capital needs in the future.
Meanwhile, D.C. Council Chairman Linda W. Cropp (D) said the Deutsche Bank plan will relieve some of the burden on many local businesses that are being taxed to help pay for the ballpark. The gross receipts tax on businesses, also known as the "ballpark fee," was set to collect a total of $14 million per year to pay debt on the construction bonds, but under the bank's plan that amount could be reduced to $8 million.
Wall Street bond raters have said they would require the city to continue collecting $14 million in business taxes to be certain that the debt on the bonds can be paid. Then the city would be able to refund any excess to businesses after each year or use it for other purposes.
The study by the DC Fiscal Policy Institute, a nonprofit liberal think tank, determined that by using private money, the city will in effect take six years longer to pay off the stadium debt -- 25 years instead of 19. During that time, businesses will contribute $60 million less -- adjusted to today's dollars -- toward the debt. Instead the city will rely more heavily on the other revenue sources, including a 1 percent utility tax on businesses and federal buildings and the $246 million from Deutsche Bank.
If the city does not sell the revenue streams to Deutsche Bank and relies on the full gross receipts tax of $14 million per year, that would allow the $60 million to go to the general fund, the study found.
"The proposal to scale back one financing source -- the Ballpark Fee -- will lead to a shift in who pays for the new stadium," from businesses to taxpayers, said the fiscal institute's report, released by Executive Director Ed Lazere.
But city financial officials said the institute is jumping to conclusions about such a shift. While the Deutsche Bank plan will reduce the need for business taxes from $14 million to $8 million, the extra money will not automatically be returned to city businesses, they said.
The officials pointed out that Mayor Anthony A. Williams (D) and the D.C. Council will be able to determine how to spend the excess and can choose to refund the money to businesses or use it for the general fund. The question is a political one, not a financing one, the officials said.
"This isn't a Deutsche Bank issue," said John Ross, a senior adviser in the Office of the Chief Financial Officer. "The issue is between the mayor and council. We are going to collect more money than we need every year. It's up to the mayor and council to decide how we use that."
Lazere agreed with Ross and pointed out that businesses had said before the Nationals arrived that they would pay a gross receipts tax to help build the stadium.
"It was their support for the financing package that was critical at a time when the majority of D.C. residents opposed public funding," Lazere said. Keeping the ballpark tax as is would help ensure, as soon as possible, that any positive effect from baseball goes into the general fund.
Cropp has said she intends to introduce legislation that would refund the excess gross receipts tax revenue to city businesses. But other council members, including Vincent B. Orange Sr. (D-Ward 5), said they believe the money should go to the general fund. It is not clear when the council might vote on the matter.
As for businesses, D.C. Chamber of Commerce President Barbara B. Lang said she has talked with Cropp and expects the money to be returned to those who pay it.
"They should collect the money and then give the rebate at the end of the fiscal period," Lang said.