There are myriad reasons for the D.C. Council to support Mayor Vincent C. Gray’s proposal for a D.C. United stadium on Buzzard Point.
Doing so would keep the team in the city and allow United to leave the crumbling RFK Stadium. It would accelerate development in Southwest where currently there are vacant lots. It would create economic benefits in three parts of the city: Buzzard Point; on U Street NW, where the Reeves Center would be redeveloped; and in Anacostia, where a new municipal building would be developed.
In all, the likely economic benefits outweigh the costs by millions of dollars, according to a recent report commissioned on the stadium deal by the D.C. Council.
And yet when the council held a hearing Nov. 5 to review the report’s findings, much of the discussion was about the risks to the city in completing such a deal.
The concern may stem from unhappy memories of the approval process for Nationals Park. The District’s then-chief financial officer, Natwar Gandhi, first projected the cost of that park at $535 million plus financing fees. After a series of escalations and overruns, the total ended up near $800 million, with taxpayers footing nearly the entire bill.
City Administrator Allen Lew, who oversaw the construction of Nationals Park, has carefully tried to protect the District against some of cost escalations that affected Nationals Park, namely those related to the acquisition and clean-up of the needed land.
By agreeing to land prices with developer Akridge, Pepco and other private landowners ahead of time, Lew said he has largely guarded against the same kind of cost variance. In his testimony, Lew also told the council that it was “important to note that nothing in life is risk-free.”
“There is risk in everything we do, and it is impossible to structure a major transaction, or for that matter a walk across the street, without risk,” he said. “To my way of thinking, the question is not whether there is risk, but rather is the level of risk appropriate for the transaction and has the risk been properly managed. In this regard, I believe the development team has done their job and done it well.”
To assess the city administrator’s claims the council relied on a former city administrator Robert C. Bobb. After serving under Mayor Anthony Williams, Bobb became D.C. school board president before being appointed emergency financial manger of the Detroit school system.
Now in the private sector, Bobb was one of the consultants that prepared the report. In it, he laid out what he considered the top eight risks to the District. Here they are in the order they are listed, explained below in layperson’s terms:
1. If D.C. finds it needs to change the deal along the way, Akridge could terminate it.
The deal permits Akridge to renegotiate its land swap if the District alters it in a way that “materially impacts” the deal. If D.C. has already begun spending money on the project, that money could be lost.
2. The District’s obligations could run beyond $150 million.
Bobb points in particular to the possible cleanup costs of the Akridge and Pepco sites, for which there are no caps to the District’s costs. (A spokesman for Lew called the possibility of undiscovered environmental issues or site preparation problems creating such overruns “remote.”)
3. The District could spend $150 million preparing land for the stadium, but the team could fail to build it.
The District must fund and complete all its obligations to the agreement by Dec. 31, 2016, while the team is required to provide a completed stadium by March 1, 2018. Something could go wrong in the meantime. Since the team has provided little financial information to the District, little is known about the team’s ability to finance construction of a stadium.
4. The District’s money is at greater risk than the team’s.
For instance, if the District has not completed needed stadium infrastructure by the end of 2016, the team could terminate the agreement. D.C. will have spent its money; the team will not have.
5. The District has limited recourse if the stadium isn’t built.
The agreement caps damages the District could win in a disagreement with the team at $5 million, and that’s only if United has already spent $4.5 million on the project. Bobb’s words: “Potentially the District may not receive any liquidated damages after spending all of its $150 million on the stadium project.”
6. Little planning has been done for the Anacostia building.
Lew plans for the government to relocate offices to a new Anacostia municipal center in three years. Bobb says, however, that “there has not been a determination of the funding source or cost estimates for the proposed center. There is also no schedule for the development, relocation and occupancy of the new government center.”
If the new building isn’t ready in time, the District would incur extra costs. How likely is it the District could plan a building, run a developer competition, vet the plans with the community and complete a new building in three years?
7. The stadium may need renovations or upgrades.
Stadiums often need some upkeep once they are 10 or 15 years old. Will the District be asked to pay those costs? Unknown.
8. There is a “high probability” the team will seek more property tax relief.
Even if United gets the $50 million in tax breaks it has requested in the deal, it would begin paying a portion of property taxes in its sixth year in the stadium and 100 percent of property taxes in the 21st year there.
Bobb: “There is a high probability that at some point [the team] would seek a permanent property tax exemption or alternatively a reduction in the assessed value of the stadium land, placing property taxes paid to the District at risk of elimination or significant reduction.”
Follow Jonathan O’Connell on Twitter: @oconnellpostbiz