DALLAS – Cuyahoga County, Ohio’s plan to help finance renovations to the basketball arena in downtown Cleveland is making a comeback after a referendum challenging the debt offering was shelved at the eleventh hour.
The $140 million bond offering to help finance a $280 million overhaul of Quicken Loans Arena, home of the National Basketball Association's Cleveland Cavaliers, is back on the table after a series of developments last week.
The financing, which the county approved in March, had been delayed because of opposition from council members and local organizations that argued the funds could be better spent elsewhere or team owner Dan Gilbert should contribute more.
On Thursday, Greater Cleveland Congregations, the group leading a coalition opposing the deal, withdrew petitions asking for a referendum vote that had threatened the financing. GCC wanted the city to commit money to community benefits or put the issue before voters.
"Today, Greater Cleveland Congregations (GCC) has reached an agreement that will benefit both downtown and Cleveland’s neighborhoods, and has agreed to withdraw petitions challenging the Quicken Loans Arena deal," the GCC said in a statement. GCC had asked for a dollar-for-dollar match of the publicly funded $140 million for neighborhood investments.
The GCC’s change of heart came one day after the Cavaliers announced they were pulling out of the arena transformation deal as a result of the upcoming referendum. The announcement came 18 days after Ohio’s Supreme Court decided that the $140 million public financing merited a referendum and the public’s input. The Cleveland City Council initially refused to accept petitions that called for the repeal of the ordinance to be placed on the November ballot.
“I am very pleased by GCC’s change of heart and their withdrawal of the petitions,” Armond Budish, Cuyahoga County Executive said in a statement. “As I have said all along, this deal is good for our city, good for the residents of our neighborhoods and our county.” Budish wrote in a letter to local pastors saying the county is committed to pursuing additional facilities and services for substance abuse and mental health crises, subject to the availability of resources and determinations of the best practice to follow.
"We are very encouraged by this new development related to the private-public partnership plan to transform The Q for the long term,” said Quicken Loans Arena CEO Len Komoroski. “We are reviewing the impact of this change and discussing it further with the County, the City and others."
The timeline for the bond offering isn’t set yet, said Timothy Offtermatt, a managing director at Stifel Nicolaus & Co., the county’s financial advisor. “We are still trying to sort out all of the new info and determine what to do next,” he said.
If an agreement is reached and construction begins by mid-September, the Cavs may salvage plans to host the NBA All-Star game in 2020 or 2021. The Cavs said that issue is still to be determined.
The renovations to the 22-year-old arena rely on $16 million from the county, at least $88 million from the city from admission tax revenue, and $44 million from the local group Destination Cleveland's share of a county bed tax, with remainder covered by the team. Increased rental payments from the team and hotel taxes would also go to repay the debt.
The project is supposed to upgrade and extend the life of the venue, as well as resolve what are described as important structural and operational deficiencies.
Backers say the upgrades will avoid the need to build a new arena at an estimated cost between $500 million and $750 million. The renovations, supporters say, will ensure the team remains in Cleveland through 2034, seven years past the current expiration of its lease.
The Cuyahoga County Council signed off on the bond resolution in March. The vote came after the Cleveland City Council agreed to the extension of a sharing agreement, in place since 1992, of certain admissions taxes generated by arena event patrons, which, Offtermatt said, was “an important component of the planned bond financing arrangements.”
The county and city vote followed concessions from the NBA team that included a guarantee to match all admissions tax revenue that will go to cover debt service, and a commitment to fund upgrades to city high school and recreation center basketball courts.
Construction on the arena was to have started this past June, but was delayed due to the prospective referendum, which threatened to delay the groundbreaking and push the project past the current construction cycle, driving the overall price tag of the project higher due to rising construction costs.
In preparation of the expected arena-related bond issue, the County had already applied for ratings from Standard & Poor’s, Inc. and Moody’s Investor’s Service for the planned issuance of sales tax revenue bonds.
Standard & Poor’s affirmed its AAA rating on the County’s sales tax revenue bonds while Moody’s downgraded its rating on the sales tax revenue bonds to Aa2 from Aa1. Both agencies focused on the County’s strong fiscal management, stable sales tax revenue, and broad tax base.
Moody’s cited “enterprise risk” related to the recent large issuance of bonds by the MetroHealth System,a discrete component unit of the county, to fund an extensive main hospital campus reconstruction project in Cleveland.
“We expect the county's sales tax revenues will continue to provide very ample coverage for sales tax revenue bonds given positive trends in collections,” Moody’s wrote.
“The County maintains extremely high bond ratings which have no impact on the Arena bond financing schedule,” Offtermatt said.
Cuyahoga County's $946 million of borrowing for MetroHealth System marked the Midwest region’s second largest transaction of 2017's first half.
Following the sale of arena bonds, the county will have $309 million of sales tax revenue bonds outstanding.
County officials retained Squire Patton Boggs LLP, and Forbes, Fields & Associates Co. LPA to serve as co-bond counsel on the 2017 arena bonds. Stifel Nicolaus & Co. is financial advisor.