Developer agreement seeks bond funding

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Taxable leasehold revenue bonds issued by an agency of the city of Springfield will fund up-front construction costs for the proposed baseball stadium in Jordan Valley Park, if City Council approves a proposed developer agreement March 5.|ret||ret||tab|

An ordinance up for second reading would give City Manager Tom Finnie authority to enter into the agreement with John Q. Hammons, his wife Juanita K. Hammons and their revocable living trust.|ret||ret||tab|

The agreement and authorizing ordinance indicate that the arrangement with the Hammonses is meant to induce them to invest private capital, but no money will be required from the couple up front. |ret||ret||tab|

The agreement is "a way to go into the bond market and borrow money on (the Hammonses') credit," said City Attorney Howard Wright. With a city agency issuing bonds the Springfield Center City Development Corporation (SCCDC) there is a slightly lower interest rate on the money, he said.|ret||ret||tab|

The Hammonses will personally guarantee repayment of the bonds, with no liability to the city should they default.|ret||ret||tab|

"There is no representation by the city that we have an obligation to make any payments on those bonds," Wright said, adding that Missouri's constitution states the only way the city can create a legal debt is by a vote of the people.|ret||ret||tab|

Besides building the baseball stadium, the agreement covers renovation of the University Plaza Trade Center owned by the Hammonses, which is located in the old Sears building at 625 E. St. Louis St. As part of the agreement, the couple would deed the trade center parking garage to the city for demolition, and in return the city would forgive an existing Urban Development Action Grant debt. |ret||ret||tab|

The approximately $800,000 UDAG debt was triggered when the University Plaza Hotel and Convention Center reached a certain percentage of profit, according to Carl Yates, special counsel to the city and one of its bond attorneys.|ret||ret||tab|

The city would build a new trade center parking garage with a 60,000-square-foot shell for an expo center on the first floor. Some of the funds for that project would come from the $2.5 million "exposition contribution." The contribution is pulled from Jordan Valley Tax Increment Financing funds, a local TIF, and a 25-cent surcharge on tickets to events at the baseball stadium, trade center and expo center. The local TIF "captures economic activity taxes ... (and) increased values in (downtown) property," Wright said.|ret||ret||tab|

The Hammonses would complete the interior of the expo center, including heating and cooling systems, with $500,000 from the exposition contribution, according to the agreement.|ret||ret||tab|

Provisions to increase parking in the area also are part of the agreement. "All the land that we've bought up to now has been paid for through the hotel/motel tax" as part of phase I of the Jordan Valley project, Wright added. |ret||ret||tab|

Tax-exempt bonds would be issued by the SCCDC to pay for more parking in Jordan Valley, a part necessary to develop the area. Those bonds could be repaid by state TIF funds from one-half the state sales tax revenues, if those funds are made available by the state, Wright said. But if state monies aren't assured by May 11, the agreement may not go forward, he added.|ret||ret||tab|

This is the first time in Yates' memory that the city has used taxable bonds to help a developer finance a project. Usually the developer has to finance the project however it can, Yates said. The agreement states that construction costs for the projects are "unknown." |ret||ret||tab|

Those costs will be "specified in the construction budget agreed to between the city and the developers and the costs shall not exceed those amounts unless agreed to in writing by the city and the developers." |ret||ret||tab|

If development costs exceed what has been budgeted, then the Hammonses will have to pay the extra costs. Hammons will prepare the comprehensive plans and specifications for the projects which the city has to approve, so he should know in advance how much bond money is needed.|ret||ret||tab|

In addition to the Hammonses' guarantee on bond repayment, their revocable trust will be "one of the makers or guarantors or direct obligees," Yates said. There is no provision in the agreement for deeds of trust to be issued against real estate owned by the Hammonses, Yates said. It would be "a ridiculous term" to ask for deeds of trust. |ret||ret||tab|

"If we had asked Wal-Mart, when they got ready to put in the supercenter on James River, We'd like to have lien on all the Wal-Mart property to secure performance on the deal,' you think we would have had a deal?" Yates said.|ret||ret||tab|

The city owns the land on which the baseball stadium will be built and would give the Hammonses a leasehold, which, although not ownership, is the next best thing because it will allow them to operate the stadium and generate income. If the couple were to default, the city could make them forfeit the leasehold and have another party operate the stadium and make bond payments.|ret||ret||tab|

But Yates doesn't believe default is an issue. The Hammonses have to provide up-to-date financial information and reveal what the trust assets, among other things, are before the bonds will be issued. "The city could look at (the financial information) if they want to ... (the city) has more than just a passing interest in looking at them ... to be sure that it's comfortable, but there's no reason not to be comfortable," Yates added. |ret||ret||tab|

Nothing "substantial" can be removed from the trust without notice and permission from the city, the agreement states. If the Hammonses remove the assets of the trust, their personal liability to repay the bonds continues.|ret||ret||tab|

Contracts and contractors for the projects have to be approved by the city, but nothing in the agreement would prevent the Hammonses from serving as contractor, which would give them additional income with which to service the bond debt. |ret||ret||tab|

The proposed ordinance doesn't specifically state that Hammons will be loaned the money. It does say "that it may be necessary and desirable for the city to advance the costs of developing and constructing the exposition space, the parking garage and the surface parking ... which the city may reimburse out of city funds or from the proceeds of the issuance and sale of revenue bonds to be issued by the city to pay the costs ..." |ret||ret||tab|

The ordinance does not require that the bonds be issued to finance the construction of the baseball stadium, however, the developer agreement does require bond financing.|ret||ret||tab|

Issuing bonds would share the risk of the projects, Yates said. "We typically will attempt to do a limited placement of the bonds because we don't want to do a full registration on the bonds (with the Securities and Exchange Commission). To do a full registration statement would cost too much money and get a limited benefit." |ret||ret||tab|

The bonds won't be offered to the general public, he said, but will be "limited to sophisticated investors who can appreciate the risk of investing in debt that is the nature of this debt. It may be a bond fund (investor)," who, like a mutual fund investor, only invests in debt. Such investors would have a minimum net worth of $100,000 and an net annual income of $100,000, Yates said. |ret||ret||tab|

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