Sunday, August 10, 2014

Proposed DC United Stadium at Buzzard Point: Nine Misunderstandings



Map of Buzzard Point with DCU Stadium Outline, 2014
(Photo: Google Maps Modified by Doug Barnes)
by Doug Barnes, David Rusk, and Tod Lindberg
August 2014

A lot of misunderstanding surrounds the proposal for a new soccer stadium for DC United at Buzzard Point. The responses below to nine key issues are based on the proposal negotiated by the District’s City Administrator, DC United, and the different landowners, which is currently being reviewed by the DC Council. The Council has hired CSL International to make its own independent review of this proposal; that review is due by September 12. Some dollar figures cited below are from the City Administrator-financed benefit-cost study by Brailsford & Dunlavey.

The figures in CSL’s study (financed by the City Council) are unlikely to be very different because the cited figures relate only to the fiscal benefits analysis of the project: taxes paid to and other revenue generated for the District by the new stadium itself and the direct operations within it. The Council has agreed to conduct the analysis over both a 10-year and a 30-year timeframe (the life of the project). The District will also likely realize significant fiscal benefits from projected off-site economic development, but they are not included in the benefits cited in response to these Frequently Asked Questions.

Question 1: Why should the District government pay $300 million to build a new soccer stadium for DC United at Buzzard Point?

The District actually will spend $119.5 million, which will cover all "horizontal costs" of the stadium site—obtaining and preparing the property for construction of the stadium. Of the roughly 10-acre total site, 7.2 acres would be purchased for $84.9 million in cash and swapped properties from Akridge, Ein, Super Salvage, and PEPCO. The District will then spend an estimated $34.6 million on site preparation, including water and sewer lines, streets, sidewalks, utility relocation and other improvements.

The District will lease the land to DC United for 30 years (with three five-year options for renewal). The stadium is a joint private-public partnership venture. The private owners of DC United will spend $150 million of their own money to build the actual stadium and may spend more if they decide to develop parts of the site not required for the stadium itself ("ancillary development"). The District will pay no part of the construction costs for the stadium itself or for any ancillary development.

Question 2: Why shouldn't the private DC United owners pay for all the stadium costs, including land acquisition and site preparation?

Within a city where land is scarce, it is very hard for a private company to acquire multiple private properties at a reasonable cost for a large infrastructure investment such as a stadium. The District has the advantage of the power of eminent domain—essentially, the ability to compel owners of a property to sell it to the city for a legitimate public purpose at a fair market price. This power encourages owners of affected land parcels to voluntarily come to reasonable terms.

The current home of DC United, RFK Stadium, has outlived its economic and physical usefulness. The team will either have to relocate into a new stadium in the District or move to another city. With the growing popularity of soccer, other cities are trying to secure MLS franchises with public-private partnerships similar to the one that has been proposed by the District. DC United has indicated its strong desire to remain in the nation’s capital, but a suitable soccer-specific stadium is a prerequisite for the organization’s profitability and long-term viability here.

Question 3: Won't taxpayers be on the hook for cost overruns of the stadium project?

The District has capped its total participation in the project at $150 million regardless of what unforeseen problems might arise during site preparation. The estimated cost of land acquisition and preparation for the site is actually $119.5 million. Agreements already have been reached for acquiring the land at $84.9 million. The District’s site preparation budget of $34.6 million includes about $5.8 million (or 20%) for contingencies, a standard allowance.

Question 4: Why shouldn't the District charge more rent for leasing the site?

The District will charge rent of only $1 per year. However, from year 11 onward the "rent" payment to the District will increased by a $2 surcharge for every ticket sold for events at the stadium. That surcharge will also apply to non-soccer events, potentially doubling the amount received by the District from soccer games. For all events at the stadium, this would amount to at least $1 million in additional payments to the District each year. The present value (see note below) of the surcharges over 30 years would be $11 million. According to the recent benefit-cost study by Brailsford & Dunlavey, the additional revenue to the city from the stadium and its operations alone would amount to a present value of close to $200 million, well above the $120 million investment by the District. This figure doesn't even count the revenue from other nearby development spurred by the stadium.

Question 5: What happens to the land after the 30-year agreement between DC United and the District?

The land will always be owned by the District. Barring a cataclysm, the land will certainly be worth more 30 years from now than the $120 million that the District will spend to acquire the land and improve the site.

Question 6: Why have a stadium? Won’t Buzzard Point get developed eventually even without a stadium?

The obvious answer is that DC United will leave Washington DC for another location, meaning the District will lose out on a $150 million investment and its on-going operations. Currently, the Buzzard Point site for the stadium is mostly industrial, including a scrap yard, piles of sand, cement mixers and empty fields. The property suffers from being cut off from Navy Yard by South Capitol Street. It is in need of development and, indeed, is one of the last parts of the city to remain undeveloped. At present, there are no signs that development will happen any time soon.

The stadium investment will jump-start the development process, and the District will be able to collect taxes from development much sooner than waiting for "eventual" development. This means that taxes will keep rising as the properties of Buzzard Point increase in value.

Question 7: What about the land swap with the Reeves Center? Wouldn't the District get more money from the Reeves Center if it was put up for sale through open bidding? Is the land swap with some cash a sweetheart deal?

This is both a good and a complicated question. The Reeves Center’s future is currently a big political issue being debated by the City Council. But no one knows what might happen if the property is bid out. Would the District actually get a higher price after all the bidding costs are subtracted from the total price? Or would the city get a lower price? Will the winning bidder be cooperative in building the kind of space that the District wants in that area of the city?

The price of the Reeves Center is based on the consensus of three independent appraisals. Also, Akridge and DC United will contribute $4.9 million in cash to facilitate the purchase of the Ein-, Super Salvage- and PEPCO-owned parcels at the site. This contribution will go away without a stadium deal. Without this deal and the opportunities it affords Akridge at the Reeves Center site, Akridge would likely expect more money for the land it owns at Buzzard Point for any eventual development.

The Reeves Center proposal in no way resembles a "sweetheart" deal in which property changes hands at a fraction of its market value. The District would get about $56 million for the Reeves Center land (about $21 million from the land swap and $35 million in cash) and about $85 million (30 year present value) in new taxes. This is a good deal for the District, and no one has stepped forward with a serious offer of a better deal. Given the three appraisals, whether or not the District could get more from bidding out the Reeves Center is an open question that might be answered by the upcoming CSL benefit-cost report.

Question 8: Isn't the site of the new DC United stadium too isolated for fans to conveniently attend games? Will parking be a problem?

As a matter of fact, the distance from the exit at Navy Yard Metro to the stadium plaza is exactly 0.6 miles, a reasonable walking distance. From there to the stadium entrance is approximately 0.1 miles, for a total of 0.7 miles. The Waterfront Metro exit, another option, is a bit farther at 0.8 miles from the closest edge of the stadium site. Both walks are very pleasant, and very flat without hills.

On days when there are no Nationals games, the 1,200 parking spaces at the two Nationals Park garages could be used for DC United games. Last year the Nationals and DC United only had four overlapping games on Saturdays, and it is possible that scheduling could be coordinated to ensure fewer or no overlaps. For those who park in the Nationals garage, the stadium is a bit closer, about 0.5 miles. Other land owned by Akridge just south of the stadium is committed to provide 850 parking spaces. Furthermore, the District has already placed parking meters on all streets around the future stadium site for current use by Nationals fans.

Question 9: Could the money the District is spending on the stadium project generate a better return invested in economic development elsewhere?

Most investments made by the District (roads, schools, government buildings, city services and others) are supported by taxes and do not generate any tax revenue. Nevertheless, the value of those investments is quite high. Education produces better and more productive citizens; roads carry residents to and from economically productive activities; and garbage collectors keep the city clean and free of costly diseases. However, the District investment in land for a new DC United stadium will actually more than pay for itself through the taxes it generates for the District, and at the end of 30 years the District will still own the land. Any near-stadium economic development is likely to generate even more tax revenue.

However, considered just as an infrastructure investment, even if no further off-site development were to occur, the new DC United Stadium at Buzzard Point will be a win for the District (more tax revenue to support city services), a win for DC United (a nice venue that is profitable and enables the team to invest in quality players to win championships), and a win for DC sports fans who will enjoy the benefits of watching soccer games and other events in a gleaming new stadium in a vibrant new neighborhood.

***

Note: Present value (PV) recognizes that a dollar in the future will have less value than a dollar today, taking inflation and returns into account. In the Brailsford & Dunlavey fiscal benefits analysis, the stream of future revenues to the District is discounted by a rate of 4% a year, a common assumption in current benefit cost analyses. As a result, a dollar of revenues 30 years from now would be worth 31 cents today.

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