Desperate dealing

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

The earth moved at Dallas City Hall last week. But in more ways than you know.
On Monday, Dallas lost the race to build an auto racetrack to Fort Worth. Which was a bad thing.

On Friday, First Assistant City Manager Cliff Keheley--the City Hall veteran who has orchestrated much of the political monkey-business surrounding the racetrack and the sports arena--announced, amid intense criticism, that he was retiring. Which was a good thing.

But there was so much more. Behind closed doors, away from public scrutiny--where all important business is conducted at 1500 Marilla these days--the racetrack and arena negotiations are taking dramatic new turns.

For the better. And it's about time.
It's been a terrible year for Dallas city government. Enormous amounts of public resources--time, energy, and money--have been spent zealously pursuing two relatively unimportant things: sports and billionaire oilman Ray Hunt's real estate agenda.

Since last February, council members and top city staff have fallen all over themselves to figure out a way to build a new sports palace for the Mavericks and Stars on Ray Hunt's land, next to Hunt's Hyatt Reunion hotel. Then, in November, Hunt pushed another of his projects, a car racetrack at Pinnacle Park in North Oak Cliff, to the top of the city agenda. And he got Mayor Steve Bartlett, Councilman Bob Stimson, and Cliff Keheley to start cheerleading madly for it--over a bigger, better racetrack project slated for a better location in South Oak Cliff.

Both have been all-consuming passions--ones that have managed, in fairly short order, to corrupt the city manager's office, expose craven political agendas, end a mostly admirable public-service career, demoralize city staff, and throw away more than a half-million dollars of the taxpayers' money on consultants' studies that had predetermined results.

As the months have passed, media scrutiny and public criticism have mounted. But with a few notable exceptions, no one at City Hall has seemed to listen--much less care.

Last week, it became clear that this is changing. Maybe it's because council elections are only two months away. Maybe it's because the councilmembers, confronted squarely with the lies and misdeeds of their city manager's office, finally felt some embarrassment--at being dupes, at being weak, at being controlled by arrogant bureaucrats.

Then again, maybe it's because the citizens can win--as long as they are given enough information to see the politics and the private agendas behind the public's business.

Whatever the reason, the city council has finally decided that what it's been doing isn't working. And so, behind closed doors, the councilmembers have decided to start fighting.

To get the racetrack back from Fort Worth.
And to get Don Carter to build his own darn sports arena.
The arena deal now on the table comes down to this: Don Carter builds it himself.

The city puts up the land and a certain amount of infrastructure--mainly roads--in an incentive package not to exceed $12.9 million. Carter would probably lease the city's land for $1 a year, thus avoiding property taxes. And Carter agrees to keep his team in downtown Dallas for 30 years.

The city, in its big downside on the deal, has to figure out how to absorb the financial hickey on the old arena--a building destined to hemorrhage money, whether it's demolished or not, when a new arena is built.

This deal has been sitting on the table since February 22, when City Manager John Ware sent a letter by messenger to Don Carter's son Ronald, president of Carter-Crowley Properties, at his office on LBJ Freeway.

"Most of our previous discussions have focused on Option A, which includes equity positions by both the Mavericks and the City of Dallas," Ware wrote in the letter, obtained last week by the Dallas Observer.

"Option A" is well-known: It has been the only game plan since Carter announced last December that he was willing to contribute $65 million toward the construction of a new arena. Under that scenario, the city would augment Carter's contribution--actually a loan, since he wants repayment from the revenues the new arena would generate--with another $65 million. That $130 million would ostensibly be enough to build a first-class, state-of-the-art arena--though the number is a far cry from the $200 million that city staff and a private business group agreed last summer such a topnotch facility would require.

When Carter made his offer, though, he also made it clear that he would want his money out first--essentially taking a first-lien position that would entitle him to first dibs on arena revenues to pay off his $65 million. When his obligations were satisfied, he said, the city then could apply any remaining revenues to its own debt service, created by the revenue bonds it intended to issue to finance its portion of the project's construction.

The city council wanted to do that deal, as long as it appeared that new luxury suites and premium seating would generate enough revenues to satisfy both parties. In fact, councilmembers repeatedly defended the proposal, insisting publicly that this was a wonderful solution because the revenue bonds would be paid off with proceeds from the facility they were financing--not with tax monies. Therefore, they reasoned, the arena was not stealing precious tax dollars away from other city priorities, and there was no need to seek voter approval.

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."

This, of course, is precisely why the citizens--along with the clear-headed few on the council, such as Paul Fielding and Donna Blumer--have been balking at the idea of building a new arena all along. If it's not a good business investment, why should the taxpayers be forced to do it?

"Welcome to the world of professional sports," says professor Mark Rosentraub, an economist and the director of Indiana University's Center for Urban Policy and the Environment, "where it's okay if the taxpayers build--just not the team owners."

Rosentraub has been a distant thorn in the side of the Dallas city council lately--especially the mayor--because, as an economist who specializes in the relationship between sports teams and cities (and a former professor at UT-Arlington), he understands Dallas' dilemma. So well, in fact, that six weeks ago, the Dallas Planning Council flew him down here to speak about the economics of sports arenas.

Which are, to put it bluntly, lousy--at least for taxpayers. Inevitably, they are asked to bear the burden of building new sports palaces for the benefit of rich franchise owners. And in return, they get almost nothing in economic benefits, since sports franchises are an inconsequential contributor to a city's economic engine (in 1991, pro sports generated only .16 percent of Dallas County's total of $30.7 billion in overall payroll dollars).

Rosentraub is reasonable and factual and, in a moment, can blow a huge hole in any hyperbolic economic drivel that the mayor and other overexcited arena boosters throw out.

Bartlett publicly ridicules him as a naysayer.
But Bartlett will be interested to hear that naysayer Rosentraub thinks the deal now on the bargaining table is a good one. For everybody involved.

"This is about as fair as it's going to get when you deal with cartels--professional sports," Rosentraub says. "If the city and the Mavs do this deal, you'd have to say it's balanced compared to everyone else who's making arena deals. This is what city management is all about--striking a reasonable deal that makes sense for everyone and where everyone takes some risk."

Carter's big risk, Rosentraub says, is building an arena that is going to have to book at least 200 event days a year--the industry's magic number--to stay afloat. Last fiscal year, Reunion Arena did 194 events--topping the previous high set in fiscal year 1987-88, pre-Starplex, when Reunion hosted 188 major events. "It's a very competitive business, and if you're doing 194 events right now, that will make it in a new arena," says Rosentraub. "But can you sustain it? That's the big question.

"And in Dallas, you have this big convention center expansion too. If Carter sits down with a good arena manager--and he can afford the best in the country--and Carter says, 'can we bid on some conventions for the new arena,' then you're bidding against yourself. It gets to be real cutthroat."

Which will surely pose a big problem for the West End, too, Rosentraub says, because Carter will want to put restaurants in the new arena. "Bottom-line is he has to wipe out the West End--or at least hurt it significantly. When his investment people and arena managers tell him he has to put in the high-volume activities, he'll talk to the people in Toronto about their enormous deal with McDonald's. He'll go to Phoenix and Arlington and look at their restaurants. He'll have to do it--he'll have too much money at risk--and the West End will become a competitor."

The hardest part of the deal for the taxpayers, Rosentraub says, is accepting that the remaining debt service on Reunion Arena--approximately $34 million in principal and interest--will have to be paid, whether or not Reunion is demolished. Plus, if it's demolished, it will cost as much as $25 million more to refinance its debt--a requirement if the building, which is the collateral for the bonds, disappears.

"But you have to remember the old economic adage--you don't throw good money after bad," Rosentraub says. "They made a bad deal 16 years ago, and now they still owe $34 million. You can't hold Carter hostage for a bad deal. Whether you do the deal or not, you're still stuck with the $34 million. So do the deal and go on."

It's a win-win for everybody, Rosentraub says. "The teams stay in Dallas. Carter gets his new arena. Hunt gets his land covered and gets his money. Hunt supports the mayor--so the mayor walks away covered.

"If Carter does the deal, you really have to take your hat off to him," adds Rosentraub. "That's got to tell you something about his allegiance to the city."

Irritatingly enough, it looks as though Hunt will get the sweetest deal of anyone. Carter has said for a year that he won't contribute a penny to a new arena unless the city gets Hunt and his 21-year-old sweetheart deal at Reunion out of the way.

Hunt now controls the entire 50-acre Reunion development around his hotel--he has veto rights over the aesthetics of anything built in the area; he leases city land and air rights all over the place; worst of all, he owns most of the parking lots and can reclaim them with a mere 90 days' notice, placing the city in violation of its agreement to provide parking for the Mavericks.

Hunt, of course, is primarily responsible for the current arena crusade. Two years ago, Stars owner Norm Green recruited Hunt to help him get the city to build a new arena (something our mayor promised Green when he moved here but, of course, could only deliver with the help of Hunt's political leverage). Just over a year ago, Hunt and Green persuaded a reluctant Carter--who at that point was merely interested in renovation--to join them.

Now Hunt, through his bulldog, Woodbine Development chief John Scovell, is in negotiations with the city, too. Hunt owns the proposed site for the new arena. And he must sell or sign a long-term lease for the Reunion parking lots and air rights, arena negotiators say, to clear the way for the city and Carter to cut a deal.

"Right now, this is the number-one issue as far as Carter goes," says one person close to the negotiations. "Hunt's known for a year that he had to resolve this problem, but he never will. It's gotten to the point where the city's had to start offering little private parking lots all over downtown as an option--some as little as 26 spaces. It's a joke."

As usual, the problem comes down to the basic instinct of the too-wealthy: greed. "So far John Scovell has been pretty much as you would expect--he understands it would be in his best interest to get this accomplished, but he's not going to give the land or the parking lots away," says one city arena negotiator. "We were hoping for some kind of land swap, but unfortunately, there's nothing in the city's inventory that he wants. I don't think it's gotten to the point where it's an obstacle. They're cordial and cooperative--to a point. Sure, they could make it easier for us and say, 'you can have the land,' but I haven't felt like they've been asses either.'"

Give them time. If Ray Hunt were the philanthropic civic booster that he's always held himself out to be, he would make it easy to do this deal. He would sell the arena land cheap (he bought it for a song 23 years ago), then lease the parking lots to the city for a $1 a year for a hundred years (his favorite arrangement for Reunion land he leases from the city).

Come on, Ray. It's time to pitch in for your new arena. We'll even name a luxury suite after you.

Speaking of Hunt, his bright idea to develop a dirty, noisy car racetrack in the middle of a residential area of North Oak Cliff is all but dead in the water.

That's the second major undisclosed conclusion reached at City Hall last week. Using Pinnacle Park as a racetrack was a stupid idea for many reasons, but it got as far as it did for only one reason: Ray Hunt, for reasons still unknown, was willing to put his name to it, as developer of the project.

Billy Meyer--a short, small-time drag-strip owner from Waco--could never have gotten the time and attention he received from city staffers, who began meeting with him in private as early as last May, without Hunt's keys to the city. And when a real racetrack contender, Bruton Smith of Charlotte, arrived on the scene in November, Mayor Bartlett became absolutely apoplectic. His maneuverings on behalf of the Hunt-Meyer proposal made his year-long arena crusade look downright lethargic.

"I think it's just so terrible that as far back as November, Bruton Smith was making overtures to the mayor about coming to the Metroplex--and that included Dallas--but the mayor never told the council," says councilwoman Donna Blumer. " Instead, he publicly endorsed Billy Meyer--meaning, 'I want to get rid of Bruton Smith because it interrupts Ray Hunt's plans to do Pinnacle Park.' That's what makes me so angry about this whole thing. Because had I known Bruton Smith was looking at Dallas, I would have prostrated myself before him."

Last week, after several months of desperate political skirmishing between the two racetrack camps, John Ware finally took the bull by the horns and, with the help of outside consultants, determined that Smith was by far the stronger applicant, with a far more appropriate site--in South Oak Cliff.

But this never went public. Because two days before Ware was to brief the council on his recommendation--which had been kept strictly confidential--Fort Worth beat Dallas to the punch and cut a deal with Smith. It was a bombshell. And the Dallas City Council knew instantly that it had blown the big one.

Last Wednesday, just as Ware and top staff were about to begin the racetrack briefing to try to determine what to do with Pinnacle Park, where Meyer's project was still on the table, Paul Fielding asked that the council withdraw into a closed-door executive session. No one was told why, and when the council emerged several hours later, no one knew what had transpired inside--except that Ware supposedly needed a two-week delay to gather more information from the Pinnacle Park group.

In truth, the delay was needed so that Ware could try his best to cut a deal with Smith--to steal the racetrack back for Dallas. The city council had belatedly wised up, and in that closed-door meeting, its members were mad as hell about the way things had turned out. "The mayor just sat there all hunkered down," says one council member. "And [Sandra] Crenshaw, [Glenn] Box and Fielding were leading the charge to try and salvage this thing. I think most of the council realized what a very, very big blow this is to the city."

On February 4, according to several council members, the city had, in fact, offered Bruton Smith an incentive package to come to Dallas. "It was in writing, two pages long, with about $30 million worth of incentives, which is ironic, when you think about it, because it's more generous than what we're currently offering Don Carter," says one councilmember. It was made clear to Smith at the time, however, that even if he accepted it, the city council still had to approve the package. Which meant, of course, a guaranteed escalation of political shenanigans from Bartlett.

When Fort Worth offered its deal last week, the politicians there were already signed on. It was cleaner and easier and without the obvious land mines. Smith signed on, not surprisingly, with the city where he was wanted.

Now Ware will try to salvage the situation--with the council's blessing of the package in hand. "John Ware is going to take essentially the same deal he offered before and put it again to Bruton Smith," says another councilmember. "Because it's pretty much what Fort Worth offered. With a sports authority and infrastructure incentives."

According to key people in the Smith camp--Smith himself will not publicly discuss the possibility of a renewed Dallas overture--the developer's agreement with Fort Worth and Denton County has plenty of escape hatches; after the formal signing, scheduled for this Wednesday, he will have 30 days to get out of it at a relatively modest cost of $100,000.

Smith, who has reasons to prefer the Dallas site (such as better roads already in place), is by no means unwilling to hear Dallas' pitch. But it's all being handled delicately, through lawyers for the city and Smith. Both sides are eager to avoid a lawsuit by Ross Perot Jr., who believes he has the track sewn up for land he owns next to Alliance Airport. "The big problem we see," says a councilmember, "is a potential lawsuit from Ross Perot, who has a track record of suing people for tortious interference with his business deals. So we're making sure that we don't interfere. We're just here."

Bartlett is crying in his cups, though you'd never know it publicly. Last week on Channel 13's "Between the Lines" he continued to chirp about Billy Meyer's integrity and great financial capabilities (that's a surprise to city officials--they've yet to see a financial statement from Meyer, though they've been asking for one for months.)

"At the end of our meeting, even though Bartlett clearly had his tail in a crack, he was still weakly defending the Pinnacle Park site," says one councilmember. The mayor finally acquiesced in the last-ditch bid to salvage a deal with Smith. Recalls the councilmember: "He said, 'I don't think this is the right thing to do, but if y'all want to...'"

Only two other councilmembers joined Bartlett in fighting for the Pinnacle Park site, councilmembers say--Donna Halstead, whose campaign treasurer is Dan Petty, a Ray Hunt lieutenant, and Barbara Mallory, who owes her election two years ago to the Bartlett-Hunt political machine.

And then there was poor Bob Stimson, who, to his brethren's chagrin, became enamored of Bartlett and Hunt after the mayor sent him on a trade mission to China last fall with a bunch of business leaders. Stimson has infuriated his constituents by working arduously behind the scenes for months with Scovell to bring the track to his district. "Bob was quiet in the meeting," says one councilmember, "because he realizes he's been riding the wrong horse. He can't wait to be able to vote for a Bruton Smith deal because he's got political problems now."

Even if Smith cannot be turned back to Dallas--and, thanks to Bartlett, making that happen is a long shot--the people of North Oak Cliff can celebrate, for it now seems certain that Pinnacle Park will never be an auto racetrack.

"I don't think there's a snowball's chance in hell that a track will ever be built there," says one councilmember who is pro-arena and quite fond of Hunt, but has looked at the racetrack situation objectively. "Everybody but Bartlett seems to know that.

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