Desperate dealing

City scrambles to finance arena privately--and steal racetrack back from Fort Worth

For the record, let's deal with Mayor Steve Bartlett's favorite myth about building a new arena. "No taxes will be spent on this arena," he has said over and over, as recently as last Monday in a full-page ad in The Dallas Morning News, paid for by the business community. In the ad, Bartlett attempts, in a letter to citizens, to correct the "misinformation, confusion and outright falsehoods" he says have been disseminated about the arena.

If all this hokum about not using taxes to build an arena were true, we would not now be using taxes that we levy on hotel and motel rooms and mixed drinks to subsidize the old, comparatively cheap arena, which has been a consistent money-loser ever since a former city council, in its infinite wisdom, decided to subsidize the building of Starplex, which has stolen many of Reunion's concert bookings.

These magical revenue bonds, whose repayment supposedly doesn't drain any tax revenue, currently require these hotel-motel and "sin" taxes, as the mixed-drink tax is referred to, because even with almighty pro sports--Stars, Mavericks, and Sidekicks--packing the house 110 days a year, total revenues don't cover the arena's operating expenses and construction debt. While it is true that hotel-motel taxes can't be used for anything but convention center and Reunion debt and tourism-related purposes, the drink-tax revenue we spend on Reunion could instead be used to fill potholes, dredge White Rock Lake, or improve the zoo.

Lucky for the taxpayers, this whole smoke-and-mirrors debate has apparently become a moot point. Because the city's bond lawyers, Ray Hutchison and Ben Brooks, and the city's financial advisor, Wayne Placide at First Southwest Co., have told the city councilmembers privately that they cannot take a backseat to Carter on revenues.

The city must have the first-lien position if it's going to issue revenue bonds, the threesome has advised city officials. "In other places where there has been a tax backup to fund the facility, sometimes you can have a second-lien position," says Brooks, referring to other cities where state government has provided sales-tax revenue, car-rental taxes, or a percentage of state income taxes to subsidize new arena construction. "But since the financing being considered here does not have a backup, you have to have a first-lien position."

And if you don't have a first-lien position, Brooks says, you simply can't issue the bonds.

In Ware's February 22 letter to the Carters, he reminds them of this nonnegotiable fact and then proposes a totally different approach to their talks. "Accordingly, I suggest that our financing discussions concentrate on Option C, which involves private funding of construction costs, and which you have identified as a feasible approach," Ware writes.

The reason this is feasible, according to several people involved in the arena negotiations, is because Carter's top priority in any new arena deal is control.

Since negotiations began last fall, Carter has been vocal about wanting control over everything from construction to day-to-day management of an arena. Under "Option A"--in which Carter and the city would both claim an equity position in the project but Carter would be relegated to the number-two position--he would get only half the control, yet he would assume greater financial risk.

So why bother? If he's going to accept risk, why not demand total control--over operations, bookings, advertising, rental fees, expenses, everything--so he can give the project his very best shot and not have to deal with the inefficiencies of government? "He really doesn't have to answer to anybody, or hardly anybody, if he pays for it all up front," says one arena negotiator. "That may be, more than anything, the thing that motivates him to do it all himself."

On the other hand, he may not do it at all. Which leads us to the great irony of this new proposal.

According to the financial figures that have been put together for the city, it's no sure thing that a new arena would amount to a financial killing for the people who built it. "We estimate the amount of money needed annually to pay off the debt on a new arena to be $15 to $16 million," says an arena negotiator for the city. "And we estimate increased revenues from a new arena to be $18 to $21 million. That's conservative--I mean, new revenues could be $30 million, but there's just no way to know.

"So if Carter spends $130 million for a new arena, is that a good economic investment for him? He sat there in front of us and said, 'I just don't know if it's worth it to spend $130 million if I'm only going to make $3 or $4 million dollars more a year.' He's trying to figure it out--what's the economic benefit for him?

"The whole issue on whether this new arena will get built is if there's enough money for Mr. Carter to make a rate of return he's comfortable with," says the city negotiator. "I think there's a real question about whether he really wants to do the arena right now. And that's ironic. It may not happen in the next two or three years--although I ultimately think it will happen."

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