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Santa Clara City Observer: March 15, 2016

Santa Clara City Observer

Stadium Boosts General Fund $2.6 Million, But Arguments About Underlying Numbers Continue

For the first nine months of the Santa Clara Stadium Authority’s (SA) fiscal yearSanta Clara’s general fund received a $2.6 million boost from a total of 22 Levi’s Stadium events between March and December, according to city Finance Director Gary Ameling’s report. At the March 8 meeting, the Council unanimously accepted thereport, but made no decision about resetting the 40-year facility rent, contractually required. Facility rent, along with performance and ground rents, make up the 49s total annual lease.

Unanimity about the financial report follows months of contentious discussion about the accuracy of Stadium Authority (SA) financial reports. Some Council Members have voted against accepting the financial reports.

The bone of contention is revenue and expense numbers provided by the 49ers Stadium Management Company, Stadco – a private LLC that’s not required to report its financials publically. These concerns weren’t raised by Council Memberswhen they approved the contracts with the 49ers years ago.

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A continuing flow of unsubstantiated “let them deny it” attacks by stadium opponents on City officials’ honesty has helped fuel an atmosphere of suspicion. Gadfly Deborah Bress – self-described “Santa Clara Advocate” and “forensic accountant” who has been accusing Santa Clara mayors and city managers of unethical conduct for more than two decades – has been leading the attack; accusing city officials of deception, dishonestyand financial “shenanigans” at almost every opportunity.

“In case there’s someone in TV-land who doesn’t understand: [that] nothing is coming out of general fund is a lot of BS,” she railed last week.

“How many times does it take to say this is inadequate for it to be fixed? This is the second time we’ve gotten a report that’s got a lot of buckets but no details. To put in huge numbers that say ‘stadium management’ without any kind of backup, without anything saying what in the hell these numbers are representing is an irresponsible way to be doing numbers.

“Making the decision with inadequate information is irresponsible of all of you, too,” she said at another point. “Somewhere the buck has to stop and this has to stop rolling downhill. Our cost accounting systems sucks, that we can’t see specifically what’s going on… This needs to be fixed. Please, insist on good information before everybody ends up in silver bracelets.”

The stadium numbers’ reliability rests on the assurance of the City’s project consultant, Keyser Marston. The consultant “has been permitted to view confidential performance data for Non-NFL events in other existing NFL venues. The update, which will continue as part of on-going updates to the operating projections, takes into account refinements and clarifications with regard to the definition of Non-NFL event net income since the [original] 2009 projection was prepared.” Santa Clara receives half of non-NFL event revenue as part of the performance rent.

Last week, the Council didn’t report any further insight into Stadco’s revenue and expense calculations since the last time it reviewed SA financials – December.

Here are the Q3 numbers.

For the nine-month period ending Dec. 30 – before the Super Bowl – the SA delivered $8.2 million to Santa Clara’s general fund, and the City expended $5.7 million for stadium-related public safety and administrative costs (the SA has no staff) – a net general fund addition $2.6 million.

Gross operating revenue was $38.3 million, according to Ameling’s report and its operating expenses were $13.8 million. Revenue from the RDA Successor Agency and the stadium Communities Facility District was $6.2 million, and $32.5 million was paid in debt interest and principle. SBL proceeds are expected to be $30.6 million this year, less than previous years as a result.

Reimbursable public safety and administrative costs were $5.7 million.Offsite parking fees covered $691,000 and the remaining $4.5 million was invoiced to Stadco.

A cost allocation study shows the Stadium Authority’s share of final cost – $909 million – at $879 million ($136 million under budget, said Ameling; reducing the SA’s outstanding debt and, consequently, interest costs. The report is at santaclaraca.gov/home/showdocument?id=17615.

Five of Sitting Council Members Approved 2016 Facility Rent Reset in 2013

Based on higher revenues and lower debt costs, the 49ers are requesting a reset of the facility rent from $24.5 million to $20.25 million. It’s one of three components of Levi’s Stadium rent – ground performance rent are the other two – and its resetting after a full year of stadium operation is in the 2012 lease.Facility rent has nothing to do with land or structure value. It’s thedifference between the amount needed to pay SA bills and the authority’s revenue from ground and performance rents.

In Levi’s Stadium’s first year, operating revenues were $57 million – over double the estimated $19 million – and operating expenses were $1.3 million lower than budget. Per its 2015 financial report, the SA retired $128 million in debt, and will pay $234 million less in interest over the next 35 years.

But the City Council seems to have developed infectious amnesia and last week seemed unaware oflease terms it approved three years ago.

“A lot of things have to be answered before we actually give our blessing to a rent reset,” said Mayor Lisa Gillmor. “I want to make sure our other reserves are kept intact [and] make sure it doesn’t affect the income tat’s supposed to flow to our general fund.”

Despite theagreement’s multiple contracts (some un-indexed and lacking functional links), nesting layers of definitions, dense legalese, and the fact that its separate parts were approved by two different Councils, its actual terms aren’t difficult to understand.

On Feb. 28, 2012 in a 4-2 vote the Council approved Resolution No. 12-7909 (Item 4.B.1) establishing the three rent components. Members Patrick Kolstad, Patricia Mahan, Kevin Moore and Lisa Gillmor approved the agreement, with Jamie McLeod and Will Kennedy dissenting.

On June 11, 2013 the Council approved the stadium lease agreement, Resolution No. 13-10, (Item 4.B.3) in a unanimous 6-0 vote by Council Members Debi Davis, Lisa Gillmor, Patricia Mahan, Jerry Marsalli, Teresa O’Neill and Patrick Kolstad.

The lease term (p.2) begins with Levi’s stadium completion, runs for 40 years, and sets the first year’s facility rent at $24.5 million (p. 26) – based on operating costs and debt service projected in 2013.

The agreement says, “on April 1, 2015 (or within thirty days after the final amount of the Stadium Authority Development Costs is determined), if the amount of either the debt service … or the then estimated operating expenses … are either more or less than the estimated amounts … in the formulas and assumptions used to calculate the Facility Rent on Exhibit J [2013 projections]… a one-time adjustment to the Facility Rent Schedule (including … retroactive adjustment…) shall be made to take account of such increase or decrease.”

In the plain English of City Manager Julio Fuentes’ report, “Facility Rent is subject to a one-time adjustment by April 2015 based on the actual amount of debt outstanding upon completion of the Stadium and adjustments to the operating expense projections … following the initial year of operations.”

Although Stadco’s underlying expense numbers are confidential, the SA’s reduced debt is unquestionable. Unless the expense forecast changes, the rent reduction is mandatory.

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