State to give Pittsburgh hockey arena $5 million assist on bonds
Add $5 million to the money Pennsylvania is giving toward Pittsburgh's pricey Uptown hockey arena.
This time, it isn't site acquisition or construction cost overruns, but a shortfall that occurred when interest on variable rate bonds soared last fall after credit agencies downgraded the bond's insurer, Financial Security Assurance Inc.
That left the city-county Sports & Exhibition Authority, which is building Consol Energy Center, with an extra $5.08 million bill and no money to pay it.
The state, which agreed to give about $40 million in Redevelopment Assistance Capital Budget grants to cover site acquisition and extra construction costs for the $325 million arena, will tap a different account for this bailout. Gov. Ed Rendell's proposed budget would appropriate $5.08 million from the Pennsylvania Gaming Economic Development and Tourism Fund for the bond bailout.
The bailout has generated little public discussion. It was buried in Rendell's proposed 2009-10 budget, with little to indicate the money would pay for arena bond shortfalls. The appropriation remains in the budget lawmakers are debating, said Sen. Jay Costa, D-Forest Hills.
The money was directed to the state Department of General Services, the state's real estate and property agency that leased the arena to guarantee payment of the $313.3 million Sports & Exhibition Authority bond issue.
The financing plan would repay the bonds at a rate of $19.1 million a year — $4.1 million from the Penguins hockey team, $7.5 million from Pittsburgh's Rivers Casino and $7.5 million from a state fund built from casino taxes.
Mary Conturo, executive director of the sports authority, said the $5 million bond bailout is aboveboard. The state's guarantee was part of the bond issue.
The authority notified the state about the shortfall in December, which led to the special line item in Rendell's budget proposal.
This might not be the last bill sent to the state. Conturo said next year's bill for interest rate shortfalls could total about $500,000, depending on the financial market.
"If it continues to improve, that number will continue to go down," Conturo said. "Our financial adviser and the bond team is continuing to review the structure of the bonds."
Budget Office spokesman Barry Ciccocioppo said the Gaming Economic Development and Tourism Fund has enough money to cover the arena bond bailout and payments to nine other projects in Allegheny County and Philadelphia, including the $7.5 million yearly payment for the arena bonds.
Other local payments from the fund include $3.4 million to pay off debt and operating deficits from the David L. Lawrence Convention Center, $3.7 million for debt and financing for a convention center hotel, and $12.4 million to pay off debt on the Pittsburgh International Airport.
"This situation is the result of the unexpected market crash in 2008," Ciccocioppo said in an e-mail. "This was a sound financial arrangement in 2007 that was caught up in the crash that affected businesses worldwide."
Legg Mason, which purchased arena bonds, apparently is not worried. In an August filing with the Securities and Exchange Commission, Legg Mason said: "While the Special Revenues are projected as of May 19, 2009, to be adequate to pay all debt service on the arena bonds, to the extent such revenues are in any year inadequate to cover debt service, the commonwealth is obligated under the arena lease to make up the deficiency."
The statement noted the state could be liable for up to $19.1 million a year and made reference to the state's $5.08 million appropriation to cover this year's shortfall.
Although the state Constitution specifically prohibits the commonwealth from assuming municipal debt, Ciccocioppo insisted the state has done no such thing with the bond bailout.
"The commonwealth, as tenant under a lease from the SEA, is obligated to seek an appropriation from the Legislature for the payment of this amount as rent. The commonwealth is NOT obligated to make payment unless an appropriation is enacted, but failure to do so could have long-term negative repercussions on the commonwealth's bond rating and other local municipal bond rating," Ciccocioppo said.