By Sam Levin
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Don't worry, the lobbyists and lawyers say.
If taxpayers subsidize a new stadium for the St. Louis Cardinals, the team promises to repay the investment by building Ballpark Village, a redevelopment project that will put condominiums, shops, restaurants, offices, a museum and 1,850 parking spaces on the land where Busch Stadium now stands.
If the team doesn't spend at least $100 million on the village, it's on the hook for huge financial penalties that will allow city and state taxpayers to get their money back, the suits say.
It's a can't-miss deal, they insist.
However, a close reading of the project agreement shows that the Cardinals could build substantially less, perhaps just a parking garage, and finish the deal without owing a dime in penalties to the government.
Because of apparent escape hatches in the agreement -- the contract that commits the city, state and St. Louis County to $200 million in stadium subsidies -- some state lawmakers are pushing for tighter guarantees.
Those proposed legislative changes are unacceptable to the Cardinals, says a lawyer for the city.
Gregory Smith, the attorney who negotiated the stadium deal on behalf of the city, says additional guarantees are unneeded: There's no way, he claims, the Cardinals can spend anything less than $100 million on Ballpark Village without paying stiff financial penalties.
"There is absolutely no possible reading of that agreement that says they can achieve final completion by building 1,800 parking spaces," Smith says. "I have pretty good credibility around this town. I don't make this crap up. If I thought there was a flaw in this agreement of this nature, I'd be so embarrassed, I'd have to reopen negotiations or something. At the end of the day, show me the loophole."
On its face, the project agreement -- the contract that says who's supposed to do what and what happens if they don't -- gives the Cards room to get out of Ballpark Village without paying a financial penalty if they can generate sufficient tax revenue from the property. Simple math and penalty-reduction clauses in the contract show that the team could get the penalty to zero by building the promised parking garage and using taxes on construction activity to decrease the penalty. However, Smith says, the federal tax code renders such clauses moot: If the Cardinals receive credits against the penalty for taxes generated in Ballpark Village, the IRS would deem stadium construction bonds taxable, which would be a deal-breaker. Rules in the tax code disallowing penalty reductions based on tax revenue are arcane and came as a surprise to him and attorneys for the team that negotiated the deal, Smith says. Nonetheless, the contract between the state, city and team still includes penalty-killing clauses that Smith insists can't be used. So, after nine months of negotiating the deal, it still boils down to one thing: Trust us.
Here's what the contract says:
Beginning in 2010, the team must pay annual penalties to the state and city if it hasn't spent $100 million on Ballpark Village. The penalties start out relatively small -- $500,000 in the first year and $1 million in the second -- but climb to $6 million a year near the end of the 26-year penalty schedule. The penalty is reduced, however, on the basis of money spent on construction in Ballpark Village -- for every $10 million spent, the annual penalty is discounted by 10 percent. According to the project agreement, the penalty is further reduced on a dollar-for-dollar basis by tax revenue generated within Ballpark Village. And the first phase of Ballpark Village is deemed complete, with no further money owed, if the Cardinals go two calendar years without paying penalties. If the team doesn't build the second half of the village, which carries an estimated price tag of $200 million, it must turn three vacant blocks over to the city. The team gets to choose the parcels.
An 1,850-space underground parking garage like the one the Cards have touted costs a minimum of $29.6 million, according to the Parking Market Research Company, based in McLean, Virginia, and Ken Chandler, an engineer with Afram Corporation in St. Louis. Chandler, who's built about 25 parking garages (including 18 in Missouri), says about half the construction budget for an underground garage goes toward labor, the other toward materials. Figuring state income taxes paid by construction workers and sales taxes on materials, construction on the parking garage alone would generate about $1.85 million in tax revenue for the state and city, considerably more than the $1.5 million penalty due in the first two years. Plus, money spent on garage construction would discount the penalty due by nearly 30 percent.
The Cards could generate additional tax revenue, and further reduce the penalty, with surface parking lots. Surface lots cost about $1,200 per space to build and generate slightly more than $60,000 in annual parking-tax revenue for every 900 cars, based on a rate of $15 per space for 81 home games. And there's plenty of space in Ballpark Village. Under the city's parking code, a 900-space parking lot consumes slightly more than 97,000 square feet, not counting driving lanes and handicap spaces. A city block measures roughly 217,000 square feet. And there would be five city blocks available in Ballpark Village, all owned by the Cardinals, once Busch Stadium is demolished.
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