Many St. Petersburg City Council Members have reviewed our Comprehensive Analysis and Review of the Rays Hines deal to develop the Gas Plant site, including a new stadium for the Rays and asked us...what would be a better, fairer deal for St. Petersburg and its citizens?
We have suggested a revised deal, which we think would be fair to all sides. Further, this is a monumental decision with a great many facts to be reviewed, and a vast majority of St. Petersburg citizens do not know the facts. Therefore, we recommend Council table a decision for 9 months to gather more information and meet with their constituents.
The following is our letter and suggestions:
2/4/24
To: St. Petersburg City Council Members
Those of us who have been meeting with City Council have been asked to comment how the current Rays Hines proposal to keep baseball at the Gas Plant site might be improved for it to be considered "fair" to the city, its citizens and Rays Hines.
While it is difficult to propose improvements that are fair to St. Petersburg and that would be acceptable to Rays Hines, our recommendations are below. At the same time, we strongly recommend that the current proposal, requiring a yes or no vote by the St. Petersburg City Council Members, be tabled for at least nine months. This would give the Members sufficient time to get all the facts on the proposed transaction, review other important considerations, consult with independent experts, and then determine either the fairness of the proposed deal, how the deal might be improved, or whether other alternatives should be considered.
It will also provide time to share the facts and the independent experts' opinions with their constituents to get their input.
At the core of the issue is that Rays Hines proffer that their proposed deal is fair – which is in a nutshell, building a baseball stadium on 22 acres at the heart of an extraordinarily valuable downtown 86-acre site and requiring a $1.66 billion subsidy in lost revenue to the city.
How can Rays Hines rationalize that such an enormous public subsidy is fair, as opposed to their purchasing land for a new stadium at fair market value and building it with their private funds, and buying the remaining developable land at market value? Their rationale seems to have many facets, including:
High Overhead: Baseballs’ high salary costs and claims of limited revenue streams; and therefore, an inability to pay for their own stadium. (*We have not seen the profit and loss statement of the team. In addition, the value of the team has been estimated at $1.25 billion to $1.8 billion – it was purchased for $200 million in 2004.)
Land Costs: The difference between the cost of land that baseball stadiums owners are traditionally used to paying and the tremendous value of the land making up the Gas Plant (baseball stadiums are generally not built on such valuable land), and
The unspecified and intangible benefits they believe the city will receive for having a professional sports team in the local area.
As the city has many high priorities and not a ready source of excess revenue with which to pay for them, it would seem, to be fair to the city (or any investor), to receive revenue back as a result of the deal that would exceed the $1.66 billion that it will lose in revenue by making the deal. And since the property is prime for development, and thus the revenue from real estate taxes once the 64 acres is developed will be received with or without a stadium, and with or without this deal (the city could partner with many other high-quality developers at much fairer terms), the revenue would have to come from somewhere else. It is difficult to understand how that revenue would be generated.
To make the transaction attractive to Hines Rays, they have asked that they be given use of approximately 22 acres for the stadium for a period of 30 years (1) tying up city land worth up to $175 million (based on recent land sales in the area), (2) eliminating the city’s ability to collect real estate taxes valued at $411 million if the 22 acres were developed for other uses, and (3) asking the city to contribute to the development of the stadium that with interest will cost the city $704 million. Additionally, Hines Rays asserts that in order to make the deal viable for them, that the city should sell them the balance of the 64 acres for $155 million ($105 million for the land – paid over 20 years, plus $50 million that they would give back for the 'community benefits' program). With land sales in the area making the land worth about $525 million - a sale by the city at $155 million would be $370 million under its value.
Altogether so far, we are at a total of $1.66 billion of taxpayers’ resources to do the deal that Rays Hines wants. And all without the city receiving any rent, any revenue from the stadium, and not participating in the significant likelihood of appreciation in the value of the team.
To put it another way, if Hines Rays paid for all of the 86 acres at fair value (estimated at $545 million more than being offered), built the stadium with their own funds, (saving the city $704 million in loan costs), and paid real estate taxes on the stadium ($411 million), the city would have $1.66 billion more money that would then be available for high priorities needs including affordable housing*, necessary upgrades to its roads, water, sewer and storm water system as well as hurricane hardening and recovery.
Affordable Housing: Note that while affordable housing is included in the proposal, there is no requirement that any will be built. The October 26, 2023, HGPD term sheet provides that for a $30 million penalty, Rays Hines do not have to build any of the promised 1200 “affordable” rental units, and while three parcels are set aside for stand-alone affordable rental units, they do not have to build them if they are unable to secure any affordable federal, state and local affordable housing grants.
Importantly, while the Rays assert that the larger project will serve as an 'economic catalyst' for the area, there is virtually no factual data that the city will receive anywhere near $1.66 billion return in additional revenue from other sources to offset its loss. (A recent study by three prominent economists reviewing 130 public-private stadium deals found very little spinoff economic benefit and concluded these deals are uniformly bad for the public.)
How can the deal be modified to be fair for both sides, while providing more assurance to the city that it can recoup the $1.66 billion or more in losses to make it an attractive proposition? It seems unlikely that a mutual agreement could be reached. Baseball stadiums are fundamentally a low-value, low-intensity land use with insufficient independent revenue streams to be able to justify being located on prime real estate acreage. Moreover, the owners claim they cannot afford to pay the full cost of construction and therefore, need free public subsidies (despite the team’s significant value). In addition, a stadium is not a suitable anchor for the broader re-development of our remarkable 86-acre Gas Plant site.
Our Recommendations: Two Routes to Fairness
First Route: Our overarching advice to City Council remains to proactively terminate baseball at the Gas Plant site in order to pursue re-development of that site with higher and better uses. Further, to still use the city's best efforts to aid the Rays in securing a stadium site in a more conventional location that will keep them in the Tampa Bay market.
Second Route: If a decision is pursued to keep baseball at the Gas Plant site (against the preferences of a clear majority of St. Pete voters in at least three surveys); require favorable terms to include:
64 Acres.
The city, in exchange for a $100 million cash payment, will provide Rays Hines a purchase option for a period of 20 years to acquire development parcels, together with development rights for 30 years keyed to the Target Development Plan and Minimum Development Requirements in the October 26, 2023, HGPD term sheet.
Specific development timelines (with appropriate penalties if they are missed) and specific uses must be established.
The purchase price of each development parcel shall be $10 million/acre plus an inflation adjustment based on an appropriate index, with the base year being 2024.
The city will undertake the performance of all Affordable Housing and Intentional Equity obligations as described in the October 26, 2023, term sheet.
The city will pay for the true public infrastructure costs to serve the development parcels, which would include improvement of Booker Creek, special transit features, environmental issues, and unique connectivity elements to adjacent neighborhoods.
Rays Hines will pay for the parks and streets and other infrastructure costs commonly paid by the developer.
Appropriate city-wide minority-owned business, small business, and women-owned business requirements would be built into the transaction – and not simply be goals.
22 acres for a stadium; and parking structures for the stadium.
The city agrees to rent the Tropicana Field to the Rays through the 2028 MLB season and the Rays will agree that the current agreement to share in development profits from land sales will have terminated.
The Rays sign a new 30-year lease with a right to renew for 30 years.
The Rays have an option during the term of the lease or renewal to buy the property for $175 million plus an inflation adjustment based on an appropriate index, with the base year being 2024.
The Rays pay rent equal to (1) lost real estate taxes based on a $1.3 billion value - $13 million/year and (2) a 7% return on land value of $175 million - $12 million – total rent $25 million/year.
The city will commit $287 million toward the stadium cost. As there is no assurance of stadium value at the end of the lease (or its renewal) and there is no revenue sharing, the $287 million will be a loan (to paid off over 30 years with interest at 8%) $24 million/year, which will offset the cost to the city to borrow the funds.
Total Rent and Loan payment equivalent to $49 million/year.
Upon renewal the Rays pay rent equal to the total.
Alternative proposal for the 22 acres for a stadium and parking structures for the stadium
Rays Hines purchase land in the south-easterly part of the Gas Plant site.
The city will provide up to $40 million to extend and/or expand utility services to the boundary of the baseball stadium site.
The purchase price shall be $10 million per acre net to the city.
The city will make no contribution to building the stadium.
With the proposed 64-acre agreement and either of the proposals for the 22 acres, the city will then have $1.6 billion more resources that it can use to fund:
$50 million - Establish a Community Benefit – Intentional Equity Trust to fund everything in the Rays/Hines proposal. .
$250 million - Citywide Affordable Housing Trust. The Trust could help to build affordable housing and help up to 10,000 qualified residents buy and fix up homes citywide and provide a significant amount of work to local contractors.
$50 million - Career Opportunity Scholarship Fund - to improve the outlook for long term job opportunities for 2,500 students who might not otherwise pursue a degree or certification after high school, by providing scholarships for a 2-year degree at St. Petersburg College including transportation costs.
$1.25 billion - Upgrades to the existing road, water, sewer and storm-water systems, as well as other high priority needs.
While these are our recommendations, we understand that City Council will only be voting in April to either approve or disapprove the current proposal with Rays Hines. We strongly suggest that the decision to vote should be tabled for at least 9 months to give city council members sufficient time to get all the facts on the proposed transaction, review other important considerations, and have time to share those facts with their constituents and get their input, and then determine the fairness of the proposed deal, how the deal might be improved, or whether other alternatives should be considered.
We make this suggestion based on:
Each city council member's obligation to make independent informed decisions brought to them by the mayor.
The extraordinary magnitude of the deal for a new stadium and the redevelopment envisioned for the Historic Gas Plant site; at the same time that Council must attend to the multitude of issues to be resolved annually in the operation of the city... it is unreasonable to expect that Council members can responsibly evaluate the deal presented October 26, 2023, in the next 60 days.
The citizens of St. Petersburg are entitled to a well informed and carefully considered decision by City Council on these inter-dependent contracts involving over $1 billion of public funds and property.
Tabling the decision would give the City Council time to have a thorough independent review by a competent third party (hired by and reporting directly to the Council) and time for additional information to be prepared so that the City Council would have more complete information upon which to make an informed decision. **A recommendation for the third party would be the International Economic Development Council.
Under Section 163.356, Florida Statutes 2023, City Council Members, when acting in the capacity of commissioners of a community redevelopment area, may employ technical experts as required. Also, under Article III, Section 3.06, of the City Charter Council, Members may appoint, without the consent of the Mayor, a Special Assistant City Attorney to the City Council to serve them in an advisory capacity. These technical experts would provide a cost benefit analysis to the city and make appropriate recommendations.
Additionally, we suggest the following be performed:
A new land appraisal based on the proposed (not current) zoning and density planned for the site, and comparable recent sales in the area.
An analysis of the impact of the bonds being sold to help pay for the project on the city’s future borrowing capacity and its credit rating. In addition, advice from counsel regarding the impact (a requirement for taxpayer approval) if the existing downtown CRA were to lose its status due to no longer qualifying as a slum or blighted area, and thus losing its right to convert property taxes into TIF general revenue.
A comprehensive report listing all significant unfunded city priorities, their costs, and the plans for their payment.
A traffic study based on the complete development of the 86 acres, including: the stadium and parking garages, the surrounding residential and commercial properties, and the average and maximum time it will take stadium attendees to park before a game and travel to I-275 after a game to evaluate if fans would tolerate delays.
An analysis of affordable housing needs and the plan to address them both on and off the property, and how a proposed $250 million Citywide Affordable Housing Trust would help to meet those needs.
A review of a potential issue extending the current TIF to fund a bond issue for the project – the question being whether it is legal to extend the TIF in an area that may not meet the conditions for a TIF.
In conclusion, we believe that the St. Petersburg City Council members have been put in an untenable position to make an informed decision because:
Members do not have all the facts.
It is reasonable to assume that expert advice is appropriate to reach a conclusion.
Considering the enormity of the impact on the city, and survey results that show a significant majority of citizens either do not know the complete facts of the current Rays Hines proposal or do not approve it, we believe the complete facts should be shared with constituents to get their input prior to any vote.
There is insufficient time to accomplish the above by April 2024.
As a result, while we suggest you consider our recommendations for a fairer deal, we recommend any decision be tabled for at least 9 months to gather information and meet with your constituents.
