BOSTON –The prospect of a state government that bleeds red ink backstopping an arena that does likewise could prompt a battle royal in Connecticut.
Democratic Gov. Dannel Malloy next year may ask lawmakers for up to $250 million to renovate the XL Center in downtown Hartford. The Capital Region Development Authority, which has already approved the funding, held a requisite public hearing in late November.
"There will be a tussle and it will be very loud," said state Sen. Scott Frantz, R-Greenwich, ranking member of the legislature's finance, revenue and bonding committee.
Connecticut's budget problems provide a backdrop.
State officials project a deficit of up to $1.4 billion for fiscal 2018. Bond rating agencies have hit the state with three general obligation downgrades this year, and S&P Global Ratings on Nov. 30 lowered its outlook on Connecticut GOs from negative to stable.
The state is also $766 million over its bond limit of $24.4 billion for fiscal 2018. By law, when aggregate bonding reaches 90% of the statutory limit of 1.6 times the estimated net general fund tax receipts for the year, the governor must review unallocated bond authorizations. Options could include deactivating bonding already approved or limits on future issuance.
Senate Republicans pulled even with Democrats 18-18 in last month's general election, thus affecting the budget dynamics at the state capitol, while narrowing the Democratic advantage in the House of Representatives to 79-72 from 86-64.
Malloy envisions more bonding to pay for the latest facelift for the 16,000-seat, 41-year old XL Center, which critics call an outdated concrete fortress.
"I can't imagine a Hartford or, quite frankly, the state of Connecticut for that matter without an XL Center or its equivalent," Malloy told reporters without elaborating.
The building today houses University of Connecticut men's and women's basketball teams, UConn's men's hockey, the minor-league American Hockey League Hartford Wolf Pack, concerts and a variety of other events.
It opened in 1975 as the Hartford Civic Center. It may be best known as the former home of the National Hockey League Hartford Whalers, who moved to North Carolina in 1997 and now play as the Carolina Hurricanes.
Today, Global Spectrum manages the XL Center, CDRA having awarded it a contract for in 2013 after a request-for-proposals process.
"The building that's there is of a fair size and an ideal location. The question is, can we reboot it? We think we can," CDRA executive director Michael Freimuth told reporters. "We recognize budget problems."
Those challenges are glaring.
"We have a problem here," state budget director Benjamin Barnes told a joint session of the committees of Appropriations and Finance, Revenue and Bonding on Nov. 30.
Barnes said fixed costs have risen from 37% of general fund revenue in fiscal 2006 to a projected 53% in fiscal 2018, which will start on July 1.
S&P, in lowering its outlook, said debt service, pension, and other postemployment benefit costs alone will account for nearly 33% of state revenue.
Bond rating agencies cited dwindling reserves and budget imbalances in their downgrades. S&P, Fitch Ratings and Kroll Bond Rating Agency assign AA-minus ratings while Moody's Investors Service assigns an equivalent Aa3 rating. Moody's, and now S&P, have negative outlooks while Fitch and Kroll have stable outlooks.
"I suspect the state will be very cautious about increasing its debt load, especially given the fixed expenses as its biggest challenge, the specifics of Connecticut's fiscal situation in general, and the slow-growth economy we are in," said Alan Schankel, a managing director at Janney Capital Markets.
Though capital city Hartford has its own crises – Mayor Luke Bronin earlier this year asked state lawmakers to create a fiscal oversight panel and consider regional taxes and other remedies – the city is experiencing some economic development uptick.
UConn will relocate its Greater Hartford campus to the old Hartford Times building downtown from suburban West Hartford, and despite an operational-and-funding fiasco that consumed city officials and wasted the entire 2016 season, the minor-league baseball Dunkin' Donuts Park might open in the spring.
"Any new or fixed-up arena – the same goes for the baseball stadium – would help economic development. The cost-benefit is really the question," said Schankel. "We've seen in many parts of the country where it doesn't always quite click."
According to a report SCI Architects conducted for the CDRA, "stakeholders and user groups" agreed that the XL Center is unattractive, given the empty storefronts and lobby because of the closing of the adjacent mall 12years ago. Other problems include a poor connection to the adjacent garage, high labor costs, a congested box-office setup and "unpredictable breakdowns."
Adding to the urgency, said SCI, is expected competition from Springfield, Mass., 30 miles north up Interstate 91, where MGM Resorts International expects to open its $950 million casino complex by September 2018. SCI said a new arena would host a limited number of annual concerts "given the aggressive approach by the casino industry."
The Hartford arena, which loses about $3 million annually, underwent a $35 million cosmetic fix in 2014.
"How many times can you renovate the XL Center? That's a good question," said Frantz. "We're way beyond our bonding capacity and we can't afford to spend a quarter of a million to re-do an entertainment and sports complex that's a perennial loser."
Frantz for five years chaired the Connecticut Development Authority – CDRA's predecessor – before his 2008 election to the Senate.
"We took [XL] over by default. We effectively owned the old Civic Center under a deal Lowell Weicker struck when he was governor, so it wouldn't cost the city $2.5 million to $3 million per year.
"It was nothing but a pain in the neck and a huge money loser. Yes, there are indirect benefits and it's good for the image of the city, but we'll never get the money back. We are heavy on the debt side and we can't pass a budget to save our lives."
Frantz also referenced failed plans to develop a pro soccer stadium, which led to the federal indictments of the would-be developers, as well as the new baseball park and XL Center.
"These places are just huge money losers and a black eye for Hartford," he said.
The SCI report said a $250 million renovation would cost less than half than an entirely new arena.
"It's hard to believe that you can build a midsized arena that's viable for $500 million. It would be more like $800 million or $900 million," said Robert Boland, an Ohio University sports business and law professor.
Arena supporters envision a seating capacity of 18,000 for basketball and 17,000 for hockey.
The renovation would add seats to the lower bowl and widen a now-crowded concourse. It would add an NHL-sized locker room, though the likelihood of the NHL returning is minimal, sports and finance experts say.
The juggling act of arena financing to promote economic development amid budgetary stress is difficult, according to Boland.
"It's a challenge we're constantly debating. You have to go to the drawing board and look at how you improve your arena. Is it worth it? Does it create more interest, more hotel nights, more events and more traffic? Do we have a multiplier effect from them?"
Consulting firm Stafford Sports LLC of Medford, N.J., said the Hartford market, within a 30-minute radius, consists of 1.2 million people -- slightly larger than Buffalo, Raleigh and Salt Lake City, all of which have major arenas.
UConn would be the prime tenant. Its men's and women's basketball teams have combined for 15 Division I national championships; the women alone have won 11. The men's hockey team competes in Hockey East, one of the nation's most competitive conferences.
UConn men's and women's basketball, and men's hockey would have to host a minimum of 10 games. UConn basketball also plays games at the 10,600-seat Gampel Pavilion on its main campus in Storrs, about 25 miles east of Hartford.
According to Boland, arena dynamics are changing.
"Architects and builders need to be a little more flexible about arenas," he said. "Now they exist on a 365-days-a-year basis. It's not just auditorium space, but people are moving about. Food and beverages have to be different.
"In my opinion, there are not enough arenas that are 12,000-seats and fewer, places that you can have college graduations and public rap sessions. Everyone needs an assembly hall."