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Friday, November 19, 2021

10 Things We Learned from Cleveland City Council's Mammoth Progressive Field Deal Hearing

Posted By on Fri, Nov 19, 2021 at 2:51 PM

This stone alone has cost taxpayers $3 million. - SAM ALLARD / SCENE
  • Sam Allard / Scene
  • This stone alone has cost taxpayers $3 million.

Cleveland City Council's Development, Planning and Sustainability Committee met Tuesday for a mammoth all-day session that included in-depth hearings on both the Progressive Field Deal and the city's allocation of American Rescue Plan Act dollars.

Though council had held a preliminary hearing on the deal—a 15-year lease extension with the Cleveland Guardians that includes roughly $285 million in public subsidies for ballpark maintenance and improvements—it had yet to receive detailed information from team representatives.



Tuesday's meeting occurred after Cuyahoga County Council had already authorized its portion of the deal. The county agreed to pay $9 million per year over 15 years, which includes substantial annual contributions from the general fund, and has greenlit a $202.5 million bond issue to finance what are referred to as "ballpark improvements." These are the proposed dramatic upgrades at the stadium like the re-imagined Terrace Club and upper deck; not the humdrum capital repairs on escalators, HVAC and plumbing, which the public will also pay for now.

Despite the buoyant, demented rhetoric from a few county council members last week — Marty Sweeney said he thought the deal should be considered the "prototype" for negotiations with pro teams moving forward — most voted in favor of the legislation more reluctantly. The impression was that they were doing so on pain of death, imprisoned by an economic reality in which the teams made all the rules and called all the shots. Councilman Dale Miller said the national system of stadium financing was broken, but that paying $200 million for upgrades seemed more prudent than paying a billion or more for a new stadium down the road. 

(The fact that the public, not the team, issues the bonds for these mega deals, and must therefore service the debt on them, is one of the big reasons why they're so lopsided, by the way. Remember that the Q Deal was billed as a 50/50 split between the public and the Cavs at the outset, and in fact it's now customary for leaders to say that owner Dan Gilbert paid much more than the public because he elected to fund additional upgrades in 2018. Once you account for the interest payments, though, the public is paying far more. The enormous debt load the county took on to finance the Q Deal was one reason why Moody's downgraded its bond rating, leading to higher interest rates and higher costs for taxpayers.)  

The City of Cleveland's portion of the Progressive Field Deal will include $8 million per year over 15 years, sourced from admissions tax revenue at the ballpark, (revenue that would otherwise go to the city's general fund), a sports facility reserve fund created as part of the Q Deal, revenues from the Gateway East parking garage, and about $350,000 per year that remains unsourced and will, in all likelihood, simply be taken out of the city's general fund.

For four-and-a-half hours Tuesday, members of city council questioned Ken Silliman of the Gateway Economic Development Corporation, (formerly Mayor Frank Jackson's Chief of Staff), and reps from the Guardians legal, strategy and community impact teams to determine whether or not it was in the city's financial interest to vote yes on the deal.

Though a number of questions lingered by meeting's end, the committee voted unanimously to move the legislation (Ord. No. 844-2021) along. It will next appear before City Council's Finance Committee and will surely be passed with minimal friction immediately thereafter. 

Here are 10 key takeaways from the proceedings.

1) The deal was done long before it arrived at City Council. No further "negotiating" will occur.

Though council was eager to zoom in on minority employment numbers as proposed by the city's standard community benefits agreement, and to express reservations about the exposure of general fund dollars, the deal's main structure—with the public paying for 2/3 of ballpark improvements and the team paying for 1/3, and the public paying for 100% of capital repairs—is final and unshakeable, evidently.

Ken Silliman said that this ratio of public vs. team contributions was arrived at after intense negotiations. (We'll have to take his word for it!) In response to questioning from Collinwood councilman Mike Polensek, a hardened skeptic of these deals, Silliman affirmed that this was the best the public could hope to achieve. It was therefore folly for council members to suggest lowering the public contribution somehow, or attempting to modify the deal with safeguards for the general fund. As with the Q Deal, council has only two options: vote yes or no. 

2) An awful lot depends on the Gateway East parking garage

Of the city funding sources, the diciest by far is the revenue from the Gateway East parking garage, which the city owns. The deal's term sheet projects that the garage will generate $2 million per year over 15 years. But if the garage falls short of those projections, the city's general fund will have to make up the difference. That's almost guaranteed to happen, given that in 2019, the final year before the pandemic, the garage generated only $1.6 million in net revenue.

Ken Silliman said that City Council has the authority to increase parking rates there and that with "inflation," the garage can be expected to surpass its projections in the future. Those guesstimates mean jacksquat.

Council has reason to be suspicious, in fact, given that the deal includes a team-friendly provision which allows the Guardians to purchase the garage from the city for $25 million if and when they determine that it's profitable to do so. (The team's legal counsel was upfront that they simply aren't confident in the benefits of acquiring the garage currently.) If they ever do proceed with the purchase, the proceeds would be stashed in an account and then simply paid back to the team as a $2 million annuity. The city will lose 100% of the proceeds from this revenue-generating asset either way. 

To be fair, it's not like revenue from the garage has been going to the city's general fund until now. Quite the contrary. The entirety of that revenue has been paying down debt on bonds the city took out in the 90s to construct the Gateway garages for the teams in the first place. Those bonds are scheduled to be paid off in full in Sept. of 2022, after which the revenue will be encumbered through 2036 or else gone forever. 

3) The Gateway East parking garage could soon have a corporate sponsor. In fact it better.

The deal's term sheet includes $330,000 per year in city contributions generated by "naming rights" for the Gateway East garage. No naming rights have yet been secured, but Silliman made it seem like tracking down a corporate sponsor would be no big deal. As projected, these naming rights would have to net about $5 million over 15 years—all of which would go directly toward the deal—and if the city can't find a sponsor to foot the bill at that rate, it'll be the general fund forced to make up the difference once again.

4) Speaking of naming rights ...

At least one council member was keen to point out that it was the Indians, not the public, profiting off a much more lucrative naming-rights deal: the one with Progressive Insurance that nets the Guardians $3.6 million per year for stadium naming rights and sponsorship agreements therewith.

Both Ken Silliman and the Guardians General Counsel, Joe Znidarsic, explained that when the team's lease was renegotiated in the early 2000s, the team agreed to pay for the operating costs of the Gateway Economic Development Corporation, and in exchange received the right to pursue naming rights deals. Silliman argued that "when the dust settled," the public, (or at any rate Gateway) came out ahead. 

That's certainly subject to interpretation, as in the term sheet for the current deal, the team agrees to pay about $1.4 million per year towards Gateway operations, $1.1 million toward Gateway property taxes— NB: the teams pay taxes only on the land, not on the value of the buildings, one of the most generous subsidies of all—and $656,000 in "rent" (lol). That's about $3.1 million total. Incidentally, the team includes these payments as part of its contribution toward the deal. But it will only contribute $4.5 million per year toward ballpark improvements. And it will no longer be covering capital repairs under $500,000, (an expense estimated at $2 million per year.)   

5) The deal includes $42 million to renovate the team's administrative offices.

Guardians Senior VP and Chief Information Office Neil Weiss presented the scope of work for six major ballpark improvements that should dramatically change the Progressive Field experience when complete. It is these six projects that will be funded by the County's $202.5 million bond issue. Among them are the total re-imagining of the left field Terrace Club restaurant, a new upper deck concourse experience, a transformed dugout and press box, and significant modernizations of the clubhouse and service areas.

The final project, euphemized as a "dramatic new front door to Gateway Plaza," is essentially a massive renovation of the team's administrative offices, which the public paid to construct and lavishly outfit in the original Gateway deal. This project would include the construction of a fifth floor atop the existing structure, updates throughout the building, the construction of a "community space" between the administrative building and the stadium, and, if history is any indication, no shortage of high-end furnishings

Weiss said that the Guardians have 3.5 times as many employees as they did in 1994 and have simply run out of places to put them. Sad! The team's $4.5 million annual contribution to ballpark improvements is rendered especially paltry when you consider that they're getting a brand-new office space in addition to the stadium improvements.

One risible defense of these so-called "Gateway plaza" renovations, in terms of public benefit, is that the "community space" between the team offices and the ballpark will include a conference center that could be available for public use, perhaps as a meeting space for CSMD or Cleveland City Council.   

6) West Park Councilman Charles Slife is still "salty" about the Flats East Bank 60-year TIF.

Councilman Slife had a number of marquee quotes from the morning presentation, and in general asked questions that got to the heart of the deal and its imaginary public benefits. He wondered, for example, whether admissions taxes were intended to be invested back into the sports facilities that generate them.

Silliman admitted that no, admissions taxes were designed as revenue sources for the general fund. Parking taxes, though, Silliman said, were designed to fund the Browns stadium as part of the "Save the Browns" campaign.

Come to think of it, the Gateway East parking projections bothered Slife, he said, because the recent ludicrous 60-year Tax Increment Financing arrangement granted to the Wolstein Project in the Flats was still fresh in his mind. That subsidy was handed to Wolstein to help with his cash flow problem, in part because parking revenue on the East Bank had fallen short of projections.

Had things like rideshare been considered when creating the Gateway East Garage projections, Slife asked (as it hadn't in the Flats East Bank projections)? And shouldn't City Council be encouraging alternative transportation modes, from a sustainability perspective?

"It's like we're saying, 'drink and drive, we've got a stadium to pay for,'" he said. "That's a joke, but I'm trying to understand how we're defending against that mixed messaging."

Slife voted in favor of the 60-year TIF back in December and voted along with his colleagues to approve the Progressive Field legislation Tuesday, but he nevertheless voiced the concerns of residents who, after decades of stadium deals, have failed to see a return on investment.

"We're like a corporation that keeps buying shares but never pays the dividend," he said. "We need to show that we're more than just a microloan bank. Residents are frustrated. They've seen deal after deal after deal, and it's not resulting in better city services."

7) Bad arithmetic leads to bad logic.

Many council members leaped at the prospect of absolving themselves for what will be yet another morally bankrupt vote by pretending the math of the deal was in the public interest. In a typical year, Silliman said, the team generates $9 million in tax revenue. And in the term sheet for the Progressive Field Deal, the city contributes $8 million per year.

"So that's a one million dollar benefit to the public!" Councilman Kerry McCormack all but yelped.

No.

In the first place, a $9 million benefit to the public becoming a $1 million benefit to the public is another way of describing an $8 million deficit.

In the second place, the $9 million that the team "generates" is not money that the team pays directly. The largest portion it does, via the admissions tax, but the city will now be foregoing half of that to pay back to the team. The other tax revenue comes from income taxes, parking taxes, and hotel bed taxes. A percentage of the parking tax revenue will be paid back to the team now as well, given that 100% of the Gateway East garage revenue will go toward the deal.

8) The team intends to create a "peer review equity group" to ensure that the team adheres to minority hiring targets throughout the process.

Neil Weiss said the team had met with both Norm Edwards of the Black Contractors Group and the Cuyahoga County Citizens Advisory Council on Equity. He said the team intended to form an equity group, consisting of perhaps 4-6 members, that would theoretically hold the team accountable on hiring goals, prevailing wages, apprenticeships and the like. Beyond the city's standard memorandum of understanding on hiring, there is no additional community benefits agreement included in the deal.

9) Demolition for ballpark improvements could start within a year. 

Assuming the legislation passes, as it almost certainly will, Neil Weiss said that the team would like to be underway with the first of its major improvement projects by this time next year. The re-imagining of the left field Terrace Club looks to be first on the list.

10) Tom Yablonsky got got.

The neighborhood development guru Tom Yablonsky, who recently retired from his perches at the Historic Gateway Development Corporation and the Downtown Cleveland Alliance, gave a familiar presentation about the splendor and vitality of downtown since the arrival of the Gateway complex. Downtown was an empty wasteland before the arenas, he pronounced. Just look at the images!!!

click to enlarge 11.19.21_yablonskyprogressivefield.png

Councilman Mike Polensek, his voice dripping with disdain, advised Yablonsky—though Yablonsky surely knew—that the photo used to illustrate the desolation of downtown before Jacobs Field had in fact been taken after the demolition of a number of buildings to make way for the ballpark.

***
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