Virginia Baseball Stadium Authority - Financing Plan Summary - June 2004 Update

The Virginia Baseball Stadium Authority has revised its financing plan to build Virginia 's Ballpark in line with provisions of a proposed agreement with Diamond Lake Associates, LLC to incorporate the ballpark into the proposed Diamond Lake site near Dulles International Airport in Loudoun County .

Under the agreement, Diamond Lake Associates (DL) will share in the responsibility for substantial infrastructure costs and the Virginia Baseball Stadium Authority (VBSA) will participate in certain revenues, such as parking fees, from the project.

As a stand alone project, Dulles ballpark construction costs would total $442 million. The agreement with Diamond Lake will, however, reduce VBSA's costs by over $82 million, resulting in a total ballpark project cost of $360 million.

VBSA has revised its ballpark financing plan to reflect being part of an overall development project. Under the revised plan, construction of Virginia 's Ballpark will be funded completely by the sources of revenue identified in existing law. While the financing plan announced in March 2003 included a small “gap” for which additional funding sources would be needed, the revised financing plan eliminates that gap. As a result, the ballpark will be completely self-funded by revenues generated at the ballpark.

The Virginia Baseball Stadium Authority no longer requests or needs a “conditional” franchise award from Major League Baseball. Virginia 's plan is complete under existing legislation. No additional taxes will be requested or needed.

In addition, VBSA will now finance the team's contribution of one-third of the project cost. As a result, the team will fulfill its responsibility for construction costs through annual rent payments and will not be required to make any up-front equity payment.

Financing Assumptions:

• No additional taxes aside from those generated at facility
• Minimize risk to Commonwealth, VBSA and local jurisdiction
• Maximize development opportunities around ballpark to share infrastructure costs and reduce overall project cost to VBSA.
• Public/Private partnership. Ownership group contributes one-third of cost through annual rent payments. Authority finances full cost of construction through bonds retired by team contribution and revenue generated at or as a result of the stadium.
• No up-front payments required from team; all payments in form of rent
• Virginia Resources Authority to issue the bonds.
• Expect strong credit ratings with appropriate revenue coverage and reserve funds
• 30-year graduated debt service structure
• Tax-exempt and taxable bond financing
• 36 month development/construction period – ballpark opening April 2008
• $10 million Performance Reserve and a Debt Service Reserve Fund
  equal to annual debt service created.

Key points of VBSA agreement with Diamond Lake Associates (DL):

• DL expects to purchase all of the land necessary for the ballpark facility
• DL will undertake infrastructure development, including parking
• DL will convert surface parking to structured parking as development occurs
• DL will control development around the ballpark, subject to local zoning requirements
• DL will guarantee a parking payment to VBSA
• DL will guarantee to master lease 125,000 sq. ft. of retail space located in the ballpark
  to be open throughout the year
• VBSA will contribute to infrastructure cost
• DL anticipates that a hotel will be constructed as part of the ballpark project

Funding Sources Authorized under Existing Virginia Statute:

• Annual State Income and Sales & Use Tax Rebates on Team and Ballpark Development
• Development and Construction Period Income & Sales and Use Taxes
• Admissions Tax
• Retail Space Rental Income
• Other Event and Conference Income and Sales Tax Revenue

Financing Plan Overview

The Virginia Resources Authority will issue approximately $418 million in bonds for the ballpark. This amount includes financing costs and capitalized interest during construction. The moral obligation pledge of the Commonwealth of Virginia will serve as a credit enhancement, however the “full faith and credit” of the Commonwealth will not be used, consequently, the bond issue will not affect the credit rating of either the Commonwealth or Loudoun County . “AA” credit ratings are expected, with the appropriate coverage levels and reserves.

Revenue sources have been refined significantly as a result of definitive plans on the scope of the project, the amount and type of retail and other space within and around the stadium, updated economic analyses, advanced cash flow analysis, and a detailed review of available state and local revenue sources and actual collections.

Reserves and cash flows provide a cushion to deal with unexpected events associated with state and local government revenue sources, team operations, and other factors – including the possibility of a work stoppage of more than a year in duration.

Three series of Bonds will be issued: one tax-exempt series for the recapture of state taxes, and two taxable series for rent payments and income from retail and parking.

The broad-based approach of a public-private venture, publicly financed in a state with the highest credit ratings available by a strong Virginia debt issuing authority, lends credibility to the project and will enhance its overall acceptance in the capital markets.

Financing Plan Revenue Sources

State Tax Rebates  

• Sales & Use Tax -- State sales & use tax of 4.0% and the local option of 1% on transactions taking place at the ballpark facility. This includes sales tax on concessions and novelties and at retail facilities located in the ballpark development.
• Personal Income Tax --Personal income tax revenue will be estimated by the State Tax Commissioner based on salaries, wages, and other income generated through employment or the conduct of a trade or business at or within the facility. This includes team players, coaches, office personnel, individuals employed by the operator of an enterprise within the facility. Rebates for players' salaries will be at 3.9% of payroll and 3.5% for all others
• Construction Period Sales and Income Taxes --State law allows for the sales and income taxes associated with the development and constructions of a ballpark facility to be rebated to the Virginia Baseball Stadium Authority. VBSA will use these tax rebates to reduce the amount of public debt to be issued for the ballpark.

Other Event Income --The ballpark will host other events throughout the year, including sporting events, private parties, concerts and corporate outings. Sales tax and admissions tax revenue associated with these events will be collected on an annual basis.

Retail Space Rental Income --The retail space located within the ballpark will generate additional income to the VBSA and the Team. A portion of this retail space rental income will be shared with the Team. The VBSA will use its share, net of expenses, as a revenue source to finance the ballpark.

Admissions Tax --State law authorizes certain localities to levy a tax based on the charge for admission to a variety of events. Cities and towns can impose the admissions tax by local ordinance with no restrictions as to rate. Counties having a ballpark of 40,000 or more in capacity can levy an admissions tax at a rate of up to 10% by local ordinance.

Flow of Funds

The flow of funds will be established as follows:

• Debt Service
• $10 million Performance Reserve (will be replenished the next year if used)
• $500,000 annual contribution to ballpark capital maintenance. Team will match and be responsible of any expenses in excess.
• Ballpark maintenance contribution
• Debt Service Reserve Fund equal to annual debt service.(if used, immediately replenished until refilled)
• 50% of retail rental income to team
• Contribution to ballpark operations

Revenue Scenarios  

Revenue is directly related to attendance. VBSA's ballpark financing plan will completely fulfill bonded debt obligations even under the most pessimistic of attendance scenarios. To illustrate this fact, five scenarios are presented that demonstrate that the plan works even if attendance over the ballpark's first 30 years of operations were to average only one million per year. By comparison, attendance among Major League Baseball's thirty teams averaged over 2.25 million in 2003. With the 4 th -largest Metro Market (5.2 million) and the 8 th -largest Media Market (5.9 million) in the nation, VBSA is confident that Northern Virginia 's MLB team attendance will far exceed the average.

While the Authority believes that the Base Scenario is the most realistic, others have been created to cover other possible situations. Exhibit 1 illustrates the revenues and bond payments for year five; when attendance is expected to stabilize following anticipated capacity crowds during the first few years of the new ballpark.

Exhibit 1 – Attendance Scenarios

Cash-Flow Scenarios

The following Exhibit 2 illustrates the financing plan cash-flows on an annual basis. Line A relates to revenues using MLB averages and shows that debt service will be covered, as well as additional funding requirements, described below. Line B relates to attendance of 1 million and payroll of $51 million, and shows that, in this case, debt service will be covered so that the reserves and Commonwealth's moral obligation are never tapped.

Exhibit 2 – Revenues vs. Expenses