The Los Angeles City Council approved a non-binding agreement last week with the developer of L.A. Live, a multi-use entertainment center, that will allow the developer to go ahead with its plans for a National Football League stadium.
Under the agreement, Anschutz Entertainment Group will raze half of the city's convention center and two parking garages to make way for the stadium project at the L.A. Live complex.
The city will use adjacent land it owns to construct a new hall for the convention center, to be financed with tax-exempt bonds. AEG will construct new parking garages as part of the stadium project that will be used jointly by stadium visitors and convention participants.
"Farmers Field will be entirely privately funded and the construction of a new state-of-the-industry convention hall, slated to replace the existing West Hall, will be accomplished without cost to the taxpayers," said Timothy J. Leiweke, president and chief executive officer of AEG.
The combined cost for the convention center and the stadium is $1.5 billion. AEG will pay a fair market value to lease the city-owned land under the stadium, adjusted annually for 55 years. Farmers Insurance Group has agreed to purchase the naming rights for $600 million.
The money from the lease will be used to pay off $275 million of tax-exempt bonds that will be sold to build a new convention center hall. Seventy-three percent of the bond payments would be covered by AEG payments and 27% of the net new tax revenues generated by the stadium would cover the remainder.
Approximately $195 million of Series A bonds would be backed by the stadium lease payment, new possessory interest tax revenues, and limited parking tax revenues.
Approximately $80 million of Series B Mello-Roos bonds would be paid with taxes collected in a special tax district.
Over the past decade, cities and states have become reluctant to pay for new stadiums.
Yusef Robb, City Council President Eric Garcetti's deputy chief of staff, said Los Angeles officials have not turned the tide on that trend.
AEG will not only pay the development costs on the stadium, but revenues from the stadium, the ground lease, and the parking garages will pay back the bonds to construct the new wing on the convention center.
"Even before this stadium proposal came forward, the city had a need for a new convention center," Robb said.
The already-completed $3 billion L.A. Live development that includes two high-rise hotels has improved the convention center's competitiveness, but Los Angeles would like to do better, Robb said.
The current convention center is not only dated, but convention organizers do not like that the south hall is separated from the west hall. They want contiguous space, which construction of the new wing will accomplish.
"We have the opportunity to issue debt and have the convention center paid for by someone else," Robb said. "As excited as we are at the prospect of the economic development tied to the football stadium, we are more excited about having the convention center rebuilt at no cost to taxpayers."
AEG now has to go through a full environmental review process and has to obtain other approvals before construction can begin. AEG hopes to have the stadium built in time for the 2016 football season.
The entire agreement hinges, however, on AEG's ability to work out an agreement with the NFL and convince a team to move to Los Angeles. NFL officials have said previously that they have no intention of creating more expansion teams.
AEG has named several teams it has contacted that might be interested in moving, including the St. Louis Rams and the San Diego Chargers.