Read the entire article here on the Washington Post website

True Costs Of Stadium Go Beyond Budget
Unfunded Expenses Cast Uncertainty Over SE Project
By David Nakamura
Washington Post Staff Writer
Sunday, December 11, 2005; C01

Mayor Anthony A. Williams and his top aides have quietly shifted major expenses for a baseball stadium complex out of the city-approved budget of $535 million in the past several months in hopes of persuading the public that the city will spend no more than the amount agreed upon a year ago.

But the District's fiscal commitment to the project has risen above that budget by at least $54 million And it isn't clear who will pay for up to $125 million in additional costs, which would raise the total to $714 million.

Although Williams (D) declared publicly last week that the project would not go over budget, the D.C. Council amended the stadium legislation last month to add $54 million in bond financing fees. The change was made at the request of D.C. Chief Financial Officer Natwar M. Gandhi, who called the amendment minor but acknowledged that it increased the city's commitment to $589 million.

"I feel thoroughly hoodwinked," said Jim Graham (D-Ward 1), who, like several other council members, said he was unaware that the action authorized the larger budget. "The council sat in blissful ignorance and approved technical amendments that expanded the budget by $50 million. . . . It's time for the council of the District of Columbia to say, 'Enough is enough.' "

From the time Williams announced the arrival of a Major League Baseball team in September 2004, his administration has understated the costs of the stadium project at several critical points, in part to help sell the deal to a skeptical council. As costs have risen in every major category for the project along the Anacostia River in Southeast Washington -- buying the land, building the stadium and paying for infrastructure -- the administration has removed project expenses and placed them in a separate category of costs that remain unfunded.

The approved budget plus the unfunded costs could reach $714 million, Gandhi told city officials last week in a private meeting.

The result is that with less than three months before the city had planned to break ground on the stadium, city leaders have rekindled a debate over the true public costs and the project remains in political limbo.

New uncertainty has prompted the council to explore building near Robert F. Kennedy Memorial Stadium to reduce costs. Tomorrow, the council expects to receive a more detailed study from Gandhi that will compare the Anacostia site to the RFK location.

In the meantime, concerns about rising costs will influence the council's vote next week on the city's stadium lease agreement, which baseball wants approved before it sells the Washington Nationals.

At a news conference last week, Williams again said, "The entire project will not cost more than $535 million."

He emphasized that bond financing fees should not be counted against the budget because they will not be covered by money from the general fund. Instead, the city will use revenue generated for the city by the Nationals' first season and by interest earned on the bonds next year before the bond money is spent on construction. He expects private developers and the federal government to cover expensive infrastructure upgrades to roads and a Metro station, expenses once covered by the $535 million stadium budget.

Most city leaders, however, remain focused on the dramatic cost increases of the past year.

From $435 Million To $535 Million

On Sept. 29, 2004, Major League Baseball returned to Washington after 33 years, setting off a celebration among fans eager to adopt the former Montreal Expos.

The deal was made official in a 70-page contract between the District and baseball officials known as the Baseball Stadium Agreement, which contained a $435.2 million budget.

Stephen M. Green, a top mayoral adviser, developed the budget along with paid consultants who specialize in facility planning and construction, and received input from baseball's stadium consultants.

The budget, which included $244 million for materials and labor, was made over two years, starting in 2002, well before the city received a team or had any architectural designs. It was based largely on an analysis of other sports stadiums, Green has said.

In a memo dated Oct. 14, 2004, consultants stated that the District could expect to spend $232 per square foot for the stadium, comparable to ballparks in San Diego, Cincinnati, Detroit and Pittsburgh that ranged from $210 per square foot to $225. On virtually every aspect of the stadium, the consultants settled on an average cost and adjusted it for inflation and the D.C. construction market.

Green's budget, however, did not include money for upgrades to a nearby Metro station and roads or other infrastructure costs because a stadium site had not been selected, said a source who helped prepare the budget. The source, who spoke on condition of anonymity because the project is at a sensitive stage, said officials also added relatively small contingency costs because they knew it would be hard to persuade the council to approve a larger budget.

At a council hearing on Oct. 28, 2004, however, Gandhi testified that, based on conversations with water and transportation officials, he felt compelled to add $50 million for infrastructure and $41 million in contingencies in case of cost overruns.

When revised financing fees were calculated, the stadium package reached $534.8 million -- $100 million higher than the mayor's initial budget. After significant debate, the council approved that package by a vote of 7 to 6 on Dec. 21, 2004.

"Finally and at last, all of us have risen above the fray, and the Washington Nationals are rounding third and heading for home," Williams said at a news conference that day. "Isn't that great?"

From $535 Million To $589 Million

During the stadium debate last December, no one was more influential than council Chairman Linda W. Cropp.

With her 12 colleagues evenly split, Cropp (D) negotiated several changes to the stadium agreement with Major League Baseball before blessing the deal. One amendment required Gandhi to conduct a second analysis of land and infrastructure. If the new costs were no more than $50 million above his first estimate for those two categories, the stadium could go forward.

On March 29, Gandhi sent a letter to Williams and Cropp stating that his second analysis raised the price by $46.4 million -- just under the council's $50 million cap. The stadium project was a go but was over the $535 million budget.

Gandhi added the $46.4 million in land and infrastructure costs to the budget and removed $54 million in bond financing fees to be paid for another way. Gandhi now says that he believed the legislation gave him that authority.

Wall Street bond raters were not satisfied with the legislation, however. They asked Gandhi to get the council to approve three amendments, including one that would allow the city to spend more than the approved budget.

Cropp agreed that the amendment was a "technical" change that would establish the council's original intent to allow Gandhi to take out the financing fees, if necessary.

The council approved the amendment Nov. 15 without discussing that it permitted the city to spend more than $535 million. Instead, Cropp cast the issue in the opposite way: The amendments were needed to get investment-grade bond ratings from Wall Street, which would save the city significant money in interest.

The council approved the amendments 11 to 2, with David A. Catania (I-At Large) and Adrian M. Fenty (D-Ward 4) opposing them. This month, Catania raised the issue again.

"The moment of truth is the integrity of the council," Catania said Tuesday at a council meeting. "Can the mayor and baseball supporters rewrite the law?"

Several members who supported the amendments, including Graham and Kwame R. Brown (D-At Large), now say they never intended to authorize more spending.

Williams, Cropp and Gandhi stressed that the financing fees will not be paid with money from the city's general fund, but rather with revenue generated by the Nationals in the past season and interest earned on the bonds next year.

But the city's commitment to the project had risen to $589 million.

From $589 Million To $714 Million

The stadium budget had grown significantly -- but not enough.

After months of work, architects submitted designs to the D.C. Sports and Entertainment Commission for a state-of-the-art stadium made of glass, steel and limestone. But the estimated cost for the ballpark had increased from $244 million to $337 million.

Cutbacks reduced the price to $300 million, but sports commission Chief Executive Allen Y. Lew said he could go no lower.

"The initial estimates that were developed by the city were for an average ballpark," Lew said. "We wanted something iconic, and you have to pay for that."

To help cover the cost of the ambitious ballpark, including buying land and the rising cost of materials, Lew shifted money within the budget. Roughly $55 million that had been set aside for infrastructure and $40 million in contingencies would be used for construction.

Those decisions have had significant ramifications. As Gandhi has analyzed the costs during his study this month, he has put the contingency and infrastructure costs back on the table and determined that the price tag for all costs related to the project could reach $714 million, although government sources said he is likely to lower that figure slightly.

Williams and sports commission Chairman Mark H. Tuohey called the infrastructure costs "ancillary." They pledged to seek contributions from the federal government and private developers. Baseball recently has agreed to contribute $20 million.

But uncertainty remains. Sixteen land owners at the stadium site have not accepted the city's offers and are asking a Superior Court judge for more money. The sports commission is hoping to break ground in March, but delays could result in even higher costs.

"People have to be alarmed," Graham said. "Do you want to finance a stadium at $535 million? That's a lot of money. How about $634 million or $710 million? At some point, you lose everybody because it's just not worth it."

Hopefully P-Town wont have the same problem.

Does anyone have any data to compare the "proposed budget" and "final cost" of some of the stadiums built in the past ten years? I remember how far over budget Safeco was, and the ensuing law suits over who was going to pay for the extra cost.

There seems to be a pattern for most of these new stadiums. Propose a stadium, get an estimate for construction and submit this budget to the bill-payers - even factoring in "overages". Whittle the number down so everybody agrees it's do-able. Then once the thing is built, the bill is way more than anyone imagined - fingers get pointed and somebody has to pay for the extras!

This is true for almost any construction project from stadiums down to home remodeling projects.

When I hear talk of MLB coming to Portland, almost everyone that I hear from can't wait for it to happen. But almost everyone is in agreement that it ALWAYS costs more than what is proposed. ALWAYS. I do believe that the people that are potentially going to pay for the Portland Baseball Stadium are conscious of this, and this is their major objection to supporting the MLB2PDX movement.

And now the events in DC are re-demonstrating the obvious - it's a very expensive gamble to try to bring baseball to your city. When I worked in construction, the old rule of thumb was: Whatever you think a project is going to cost, double it.

I truly believe that we have a wonderful financial package to present to MLB for bringing a team here. But the Marlins are supposedly ready to leave Miami because they fell $50 million short on their funding. The reality of the final project, as demonstrated in DC, is they are really several hundred million short on their funding.

How can we honestly say that it will be any different if they move to Portland? How does our funding package deal with the extra $100 - $300 million that it will really cost?

Est./Actual in millions
Comiskey...$137/$150
Camden.....$110/$110
Jacobs.....$180/$175
Arlington..$190/$191
Coors......$215/$319
Turner.....$232/$239
BOB........$330/$351
SAFECO.....$320/$517
Comerica...$240/$300
Miller.....$250/$382
Pac Bell...$262/$255
Enron......$265/$250
PNC........$230/$216
Great Amer.$235/$320

Basically:

2 came in over budget within $7 million dollars..

4 came in under budget...

8 came in over budget but 1 of those was due to accident (workers killed in Milwaukee) and 1 was due to the fact the city hired a local designer who'd never designed stadia of any type and the team ordered changes on the fly (Seattle).

So for 14 stadiums in MLB (not counting the unfinished St. Louis park or the remodels) built since 1990 the grand total is combined $486 million over budget on a total price tag of $3,775,000,000....

When you consider close to $4 billion dollars were spent and they only came in $486 million off budget which is only around 13% it proves that they have a pretty good grasp on what it's going to cost during the estimation....

This is very interesting. Like framefive I have had the impression our stadium proposal is likely to go over the advertised budget. But these valuable statistics prove otherwise. We have a public misconception to correct concerning stadium financing accuracy. If some of us here question the numbers, you can bet the public at large will be hyper critical. It will be an increasingly important goal for us to successfully enlighten the public on responsible stadium financing once the ball gets rolling here in Portland.
There is no tragedy in cost over runs. They happen often in business. What is a tragedy is when you see stadium plans like DC which fail to spell out in advance who is on the hook for over budget expenses. If the taxpayers are anyway responsible for stadium financing arent they at least entitled to an iron clad agreement?

I humbley stand corrected in my own misconception on stadium cost over-runs. I admit I got this impression from listening to other mis-informed folks rather than my own research. But it now makes feel like we, the misinformed are definitely in the majority around here.

No need to be humbled. It's basically a common misconception that people have on this issue....

P.S. If I haven't alreay.

Welcome Framefive!

Enjoy the site and tell your friends...

Stadiums under budget NEVER get hype.

Stadiums over budget get considerable press. That's just the way the media works.

Mind you, for some reason, I also kept a quote from someone within the Cato Institute... "Politicians have an edifice complex."

From the Washington Post:

"An MLB official implied that baseball might seek to move the Nationals, or even revive the concept of contraction, eliminating the franchise as part of a new collective bargaining agreement with the players' union."

I seriously doubt that the council will approve of a baseball stadium that costs near $1 billion dollars to make. I think it is best, Maury, that you keep your eye on the Nats/Expos again from now on, because it doesn't look so good in D.C. right now. MLB is mad about Mayor Williams, while people are holding up...stay tuned.

This is what you get when MLB thinks it can dictate to a city how and where it should manage its operations, instead of letting the city leaders, who know their town better than MLB does, make the decisions. MLB seems adamant that "you are GOING to build us a ballpark here, in THIS spot, or we'll take our team and go elsewhere", when the most reasonable thing for the city to do might be to build a less-expensive yet very nice facility next to RFK. No reason the Nationals couldn't make a go of it there instead of in the Navy Yard, and if that's in the best interest of the city of Washington, then MLB ought to back off and let the city run its own business.

As for contraction, don't let that worry you. The owners would have to really sweeten the pot tremendously to convince the union to cut jobs (and how can they do that when so many of them are claiming poverty to begin with), and when cities such as Portland and Las Vegas are asking for teams, the ensuing public relations of contraction would be a nightmare for MLB. Tain't gonna happen.

I have been immersed in completing a couple of articles for the Hardball Times, plus I have an article due next week for The Baseball Analysts. In between that, I have been going over what is transpiring in DC. I am fortunate in that I have a direct line into some of the situation going on.

Knick_9 posted part of the article from today's Washington Post. I will say that contraction is a straw man, and relocation is something that is mentioned only to get DC to move, which they will.

This will be of interest, I'm sure.

Below is the contents of a letter from Bob DuPuy to Linda Cropp that I received last night:

December 19, 2005

The Honorable Linda W. Cropp
Chairwoman
Council of the District of Columbia
1350 Pennsylvania Avenue NW
Suite 504
Washington DC 20004

Dear Chairwoman Cropp:

I very much appreciated the opportunity to meet with you and other Council Members last week as you were preparing for final consideration of our Lease. We used our best efforts to reach closure with the Council to ensure the future of the Washington Nationals in the District of Columbia. If the Council fails to approve the lease, we would be at a crossroads.

It was almost exactly one year ago that the Council paved the way for the return of baseball to Washington by approving the Baseball Stadium Agreement (BSA). Although much has been made of some bumps in the road over the last year, I was actually struck by how little has changed since the City first approached us with a proposal to move our Montreal franchise to Washington. For the most part we accepted the basic economics of your first proposal. They were documented in the BSA. Just before approving the BSA last December, you requested some significant concessions to reduce the City's risks related to late completion penalties. We agreed to modify the BSA along the lines you requested.

The basic terms of the Lease were determined a year ago in the BSA. To be sure, we have fleshed out a lot of important detail, but the fundamentals were settled last year. Since then the City has encountered challenges in two areas. One is the budget. The other is financing.

A lot of attention has been focused on budget escalation. As I pointed out when we met, the dominant reasons for budget increases have nothing to do with the ballpark itself. Rather they are associated with land acquisition, infrastructure and other items over which MLB has no influence or control. Nevertheless, to help the City contend with budget pressures and carry out its BSA obligations, MLB made a number of very important additional concessions not required by the BSA. Foremost was our agreement to make a $20 million contribution to the project. In addition, we agreed to allow the City to sell rights to related development (perhaps a million square feet) on the northern portion of our site and to retain 100% of the development profit to help offset land acquisition costs. The related development will generate demand for parking, and we further agreed that the City could retain two-thirds of the non-event parking income on our site. Those substantial revenues would continue for 30 years and can be used to fund unanticipated cost overruns or to pay off bonds and reduce or sunset the ballpark business and utility taxes.

Financing is the other area where we pitched in at your request. The BSA made bonding a City responsibility in which MLB had no role. But the City wanted an investment grade bond rating. To help achieve that important goal, the City requested that we pay our rent in a lump sum in advance of each season, that we put up a letter of credit for a one-year rent reserve, that we waive set-off rights against rent, and various other items. Although not required by the BSA, we agreed to do it and to bear the associated costs, which are substantial. I mention all this because I was surprised by how few Council Members were aware of all these concessions by MLB.

The BSA requires Lease approval by the end of this month. Despite today's announcement that you will postpone the vote, we urge the Council to approve the lease prior to this deadline. If the Lease is not approved by then, the City will be in default on its contractual commitments and we will then have no choice but to prepare for arbitration. MLB has done everything the BSA required of us and, as I explained, much more. In arbitration, all prior concessions by MLB would be revisited. We will all be very disappointed if we do not reach a result that serves the interests of our fans and the Washington D.C. community.

Very truly yours,


Robert A. DuPuy
President & COO


cc: Mayor Anthony Williams
Mark Tuohey

quote:

In arbitration, all prior concessions by MLB would be revisited.

This is one of the more key comments in this whole document. Basically he is saying that if they go to arbitration then everything is open for negotiation, including all past concessions. NOT what D.C. wants to happen. Lets see how quickly they jump.

So would a company like Coca-Cola help a stadium in Portland if it actually went over the proposed amount

quote:

Originally posted by North-P.O:
So would a company like Coca-Cola help a stadium in Portland if it actually went over the proposed amount

Interesting question. Ask yourself what a company, such as Coca-Cola, would stand to benefit from when making a large investment such as you are suggesting.

Private financing, if it occurs, needs to have some form of method in which monies are recouped. The most current example of a proposed private financing component is in DC with the Deutsche Bank deal.

I still think a land swap of the type considered by Wolf with the A's would make the most sense for PDX. Particularly, if a stadium were to be built in the Pearl. Granting the right to build a condo, with its ongoing revenue stream, attached to, and in exchange for, the building of a stadium would solve alot of our financing questions.

I think baseball is gonna have to give in a little on this one. They've already waived the Dec. 31 deadline, indicating that they aren't prepared to leave immediately. And as long as they postpone the deadline, the more time the City Council has to negotiate.

Here in DC, the Council has been demanding an owner. Telling, MLB they won't approve a lease until the league selects an owner for the team. (might happen?)

The real problem MLB has, is that they're losing the fight with the public. By and large, DC residents do not support building a stadium. The city wants baseball, they just don't want to pay 700 million for it.

This combined with the fact that you have three new members of the council who all ran anti-stadium campaigns. Well, it puts the city in a tough spot. Voting for the stadium could be political suicide for some council members?

Will DC keep the Expos? Of course. Will the city sign off on a ridiculously expensive stadium? Without a doubt. Will it be fun to watch MLB squirm. Most definately.

quote:

Originally posted by marc636:
I still think a land swap of the type considered by Wolf with the A's would make the most sense for PDX.

When it comes right down to it, after you capture all of the available revenue streams that are linked directly the the stadium itself (some, perhaps all, of which would otherwise accrue to ownership), giving away development rights in the immediate vicinity is the only asset that a city can tap into without dinging the taxpayers.

This concept could work in principle at the Pearl site and Blanchard site. At the proposed site in DC, it doesn't work at all since the city doesn't own any of the land in question.

Catalyst makes a good point as well --- at this point a "yes" vote in DC could very well be political suicide. At the same time they fully realize that voting this down (and thus violating the contractual agreement they made with MLB) would cause even more damage in the long run. The delays are happening because they are negotiating which of the seven council members will be forced to walk the plank.

Right now I am soooo glad we didn't get the Expos. I want us to deal with a single, committed owner, not with a giant, antitrust-protected oligarchy putting a gun to our heads. They are doing this to Washington, DC, the 4th largest market in the country, one of the largest tourist destinations, one of the most important and powerful cities on the planet. If they can do this to them, imagine what they would have done to us.

Then again they have no one to blame but themselves. They should have just committed $X dollars (say, $500 million) towards stadium construction and left it at that. No one will ever convince me that MLB would have walked from that and moved to Vegas, Portland, or contraction.

quote:

Right now I am soooo glad we didn't get the Expos. I want us to deal with a single, committed owner, not with a giant, antitrust-protected oligarchy putting a gun to our heads. They are doing this to Washington, DC, the 4th largest market in the country, one of the largest tourist destinations, one of the most important and powerful cities on the planet. If they can do this to them, imagine what they would have done to us.

How true! It is hard to imagine how this would have effected Portland. Ouch! I'm sure with all the problems with DC unfolding, it will be mandatory for our plan to be iron clad with every possible scenario covered and thats not such a bad thing.

quote:

So would a company like Coca-Cola help a stadium in Portland if it actually went over the proposed amount

Kinda like Turner field where they placed a giant Coca Cola bottle out center field. When someone hits a homer the thing shoots fireworks! A bit tacky, but very Atlanta!

quote:

Then again they have no one to blame but themselves. They should have just committed $X dollars (say, $500 million) towards stadium construction and left it at that. No one will ever convince me that MLB would have walked from that and moved to Vegas, Portland, or contraction.

Absolutely. DC is a goldmine for baseball. And while I love Portland, and hope they get a team within the next 5 years, they just don't have the same corporate base that DC has.

That said: There is no way the Portland City Council will be as difficult to negotiate with as the DC council.

quote:

That said: There is no way the Portland City Council will be as difficult to negotiate with as the DC council.

Wanna bet? ee MrJones' report of what he heard on KPAM lat night, an interview with Mayor Potter. For public comsumption, the mayor seems to be taking an extreme hard-line "not one single dime of public money" stance any time the subject is broached, and if he's ANY influence with the council, we're gonna have to deal with a bunch of stubbron, bull-headed politicians with no vision or foresight for our city and state.

Well, it may be tough to deal with the Portland City Council in the sense that the city won't give much public money.

However, I feel that Portland will be very straightforward with MLB. They will give whatever they promise. The DC Council promised one thing and now is backing away from the contract they signed. That's the difference I was getting at. But yeah, Portland isn't going to give much away to MLB.

I think the "era" of public funded stadiums is over.