Worcester Business Journal

wbjournal.com | December 6, 2021 | Worcester Business Journal 15 stadium costs as well, said Peter Dunn, chief development officer for the city. First-year shortfall When the city knows in advance a major multi-million dollar project is coming, it can set aside money to help meet the initial phases of its long-term debt obligations, Augustus said. Because of the relatively short three-year window between the team's 2018 announcement and Polar Park's opening, the city didn't have time to set money aside for what grew into a $160-million project. Instead, the size of the annual payments for the first few years of the city's 30-year debt obligations are smaller than what they will average over the life of the repayment plan. e city is relying on a generally accepted accounting practice of capitalized interest to cover a significant portion of those early year payments. e practice of capitalized interest essentially uses part of the loan to pay off an earlier part of the loan. e City of Saint Paul, Minn. used capitalized interest for the first 1.5 years of paying down the construction costs of CHS Field in 2015, which aer Polar Park is the most recently built city-owned Triple-A minor league baseball stadium. Victor Matheson, a sports economist at the College of the Holy Cross in Worcester, who has been skeptical of the city's promise to have the stadium pay for itself, said capitalized interest is a normal way to finance major projects. "With any big construction project, you need the money for construction before the revenue from the project starts coming in," he said. Despite capitalized interest covering 70% of Worcester's obligation for the stadium debt payments in fiscal 2021, the city didn't generate enough other revenue inside the ballpark district to cover that first payment. For that fiscal year, which ended on June 30 about halfway through the WooSox inaugural season, the city needed the district to generate $640,000. Instead, the city got $391,000. However, the city didn't need to dip into its general fund to cover the shortfall, thanks to the planned Churchill James development, Dunn said. e developer needed a property the city originally obtained for the stadium, and bought it on Dec. 1 for $3 million, which was put into a fund to offset the first-year ballpark revenue shortfall, and any future shortfalls in stadium debt obligations. Augustus said the $3-million sale occurred almost by happenstance, as the city never considered buying properties just to sell at a profit to fund the ballpark. e city didn't originally want to purchase the properties at 85 Green St, 2 Plymouth St., and 5-7 Gold St. for the stadium, but bought them for $10 aer the owners of those properties insisted the city include them in a package deal for land the city did want. "We ended up buying more than we needed for the ballpark, but it ended up working out in our favor," Augustus said. Team-friendly lease e WooSox are responsible for more than $60 million of Polar Park's cost, but the team's contribution toward the fiscal 2021 debt payment was $8,043. For calendar year 2021, which includes the entirety of the team's inaugural season, the team's total lease payment is $32,171. is significantly below-average annual payment is due to how the team's lease with the city is structured, where the bulk of its financial obligations are reserved toward the end of the deal. e payments steadily increase each year, with 42% of the WooSox total responsibilities being paid in the last 10 years of the contract, including a $9.9-million payment in the lease's 28th year. e team and the city can renegotiate the lease terms at any time. e WooSox requested the lease be structured this way, said Augustus, as the team planned for problems arising with moving into a new ballpark. "We knew the first couple of years, we would have to work some bugs out," Augustus said. WooSox officials declined to comment for this story. is backend-loaded lease agreement runs in contrast to the deal the St. Paul Saints struck with the City of Saint Paul, Minn. Under that agreement, the Saints pay nearly identical $450,000 payments every year for 25 years, with the total payments being slightly higher near the start of the lease than at the end. When the cost of Polar Park rose to $160 million in January, the WooSox agreed to extend their obligation to stay in Worcester from 30 year to 35 years, although the payment schedule runs for only 30 years. is is because the team must pay off its portion of the stadium costs within 30 years. Aer that is complete, the city and the team will have to negotiate a rent payment for those last five years, said Augustus, who added those negotiations are unlikely to occur while he is city manager. "I definitely don't plan on that, as I will be in my late 80s by then," he said. Tracking ballpark district finances Even though Augustus has called the stadium paying for itself his North Star, the city doesn't have revenue and expenses accounts set up to ensure that is 100% true, as Worcester is relying on what McGourthy, the city's CFO, describes as the spreadsheet approach. City officials are simply tracking the ballpark expenses and the district revenues to ensure the project pays for itself, McGourthy said. e ballpark tax district won't have a separate account set up in the city budget until fiscal 2023, which starts on July 1, 2022. e main reason for this delay is the stadium is still a construction project run by the Worcester Redevelopment Authority through the end of calendar year 2021. Aer, the ballpark district will transition over to the city budget, where it will have a separate account. e delay gives the city time to work out logistics problems on the ballpark district revenues, Augustus said. e main issue is a 0.75% city-imposed sales tax on restaurant meals inside the stadium and the ballpark district, which is supposed to help pay the debt. e Massachusetts Department of Revenue collects this meals tax citywide and disperses it to the City of Worcester in one lump sum. By fiscal 2023, the city hopes to have worked out a solution with DOR to parse out which revenue came from inside the ballpark district. For fiscal 2021, the city projected meals tax would generate $17,000 from stadium concessions and another $20,000 from restaurants outside the stadium but inside the ballpark district. Augustus and McGourthy were further encouraged about the stadium's ability to pay for itself because parking fees for the city came in at $188,364 for fiscal 2021, which was 61% higher than expected. ey were encouraged because parking is the main aspect of the city's 30-year debt repayment plan most tied to the number of fans coming to WooSox games, and that increased revenue came during the portion of the baseball season where the number of Polar Park fans were limited due to coronavirus restrictions. L A W & A C C O U N T I N G F O C U S W Peter Dunn *Revenue sources include property taxes, meals taxes, parking, and team lease payments. Source: City of Worcester Fiscal 2021 $2.1 million $1.46 million $640,000 $391,000 Fiscal 2022 $3.9 million $1.9 million $2 million N/A Fiscal 2023 $4.8 million $1.9 million $2.7 million N/A Early Polar Park payments Before the developments surrounding the Polar Park baseball stadium are built and start generating taxes, the City of Worcester is relying on capitalized interest on its bonds for the $160-million municipal project to cover a portion of the early years' payments. Fiscal year Total bond payment due Amount covered by capitalized interest Amount city needs generated from ballpark taxing district* Amount generated from ballpark taxing district* WooSox's backend-loaded payments The payment schedule for the Worcester Red Sox to pay off their obligations for the cost of building their stadium has the bulk of the team's responsibility pushed toward the end of the deal. This stands in contrast to the next most recent city-owned baseball stadium built in Triple A minor league baseball – CHS Field in Saint Paul, Minn. opened in 2015 – where the team's payments are nearly identical each year. * The WooSox are obligated to stay in Worcester for 35 years, although the team must pay off its stadium financial obligations in 30 years. Sources: City of Worcester; City of Saint Paul, Minn. Worcester Red Sox Saint Paul Saints Stadium Polar Park CHS Field Stadium owner City of Worcester City of Saint Paul, Minn. Total construction costs $159.5 million $64.7 million Length of team lease 35 years* 25 years Team annual payment in first year of lease $32,171 $436,650 Lowest annual team payment $32,171 in first year $434,263 in third year Highest annual team payment $9.9 million in 28th year $514,744 in 14th year Portion of team's total payments paid in first third of its lease 23% 33% Portion of team's total payments paid in second third of its lease 35% 35% Portion of team's total payments paid in final third of its lease 42% 32%

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