Linda Cropp, memorandum on baseball legislation, November 5, 2004

To: Mayor Williams and Members of the Council of the District of Columbia
From: Chairman Linda W. Cropp
Date: November 5, 2004
Subject: Baseball Legislation

This memorandum sets forth my proposal to build the new baseball stadium adjacent to RFK Stadium instead of the South Capitol site, both in Ward 6. The goal of this proposal is to substantially reduce the cost of financing the stadium on the District and its businesses, thereby addressing significant concerns that have been expressed by residents and businesses throughout the city, while still bringing the significant benefits that would accrue to the city with the return of Major League Baseball. The RFK site provides an opportunity-to bring together opponents and supporters of the proposed stadium financing legislation that is pending in the Council, which in its current form would continue to divide both the Council and our citizenry for many months and years.

As many of you know, the RFK site has always been my first preference for the location of a new stadium for a Major League Baseball team, because the RFK site is the least costly to the District due to the fact that there is no need to spend any money on land acquisition for the stadium (estimated by the Mayor to be $65 million) or on the parking that is necessary to support a stadium (estimated by the Mayor to be $16.5 million). Nevertheless, I had been willing to support .the South Capitol site, because of its real potential to act as a catalyst for economic development and revitalization of a currently blighted area of the District, in a similar manner as the District's support of the MCI Center on 7' Street has helped stimulate the revitalization of the east end of Downtown, which in turn has generated substantial new revenues that have benefited the entire city.

However, my initial concern about the substantially higher. costs of the South Capitol Street site has been reinforced and exacerbated, due to several factors:

1) Due to the higher costs of the South Capitol site associated with land acquisition and the need to construct a parking facility, the gross receipts fee on businesses that is being proposed to help finance the stadium ("ballpark fee") is necessarily higher and longer in duration than it would otherwise be to finance a stadium at the RFK site. I have stated from the outset that I would support the proposed gross receipts fee only if the business community supports this fee, because I am not about to harm the thousands of businesses, which have been here in the District creating jobs in the District, in favor of another business which has not been here and which frankly can afford to build the stadium itself. While the business community has generally supported the gross receipts fee, because they, like I, believe that baseball will bring economic spin-off benefits to them and to the District in the long run, there have been concerns from the outset with the fee's impact on all businesses, particularly on those with low profit margins.

Many in the business community - the restaurant industry, for example, which still has a surtax associated with the development of the new convention center - continue to express concerns about the potential adverse impact of the gross receipts fee on their businesses. This impact is compounded by the fact the proposed fee is substantially higher than the arena fee that these same businesses paid for seven years to finance the infrastructure of the MCI Center. The amended legislation of the executive also nearly doubles the fee on the highest grossing businesses from the Mayor's initial proposal, and some of these businesses are now expressing concerns. Moreover, the Community Benefit Fund that is proposed in the amended legislation appears to provide that some portion of the gross receipts fee would be used to help finance this fund, which would increase the duration of the fee's imposition on businesses. An even longer duration of the fee is unacceptable to the business community, and unacceptable to me. The concern is increased for those businesses which have more than one company and would have to pay up to five times the amount.

2) There is a real possibility that the estimated cost of acquiring land and relocating existing property owners on the South Capitol site, and the cost of building a parking facility there, could be much higher than current estimates. We have heard anecdotal evidence of the higher value of land in the area than the amounts estimated in the Mayor's proposal. We are aware that there would likely be District costs associated with the relocation of the Metro bus barn, with the upgrading or increased usage of the Metrorail facilities, and with the improvements planned for South Capitol Street. And many of us believe that a substantial amount of additional parking is needed at the South Capitol site beyond the amount budgeted for in the Mayor's proposal.

3) The Baseball Stadium Agreement imposes severe penalties upon the District if stringent timelines are not met for the stadium's development by the District, and the risk of these penalties at the South Capitol site appears to be too high, because: a) The South Capitol Site will likely require the District to acquire or threaten to acquire property by eminent domain; b) There are likely to be legal challenges that delay the District's acquisition of property needed for the stadium; c) There exist legal uncertainties about a jurisdiction's ability to exercise powers of eminent domain for private economic development purposes, which is the subject of a case pending before the U.S. Supreme Court; and d) If delays occur and the severe penalties are imposed, the proposed gross receipts fee on businesses would need to be increased even more to cover this increased cost of the stadium development. This unlimited escalator clause at such a risky site has created apprehension within the business community.

Ever since the Mayor announced his agreement with Major League Baseball to relocate the Montreal Expos to the District, I have applauded the Mayor for accomplishing this longstanding objective of the District and its citizens. All of us in the District would strongly prefer that a stadium be built without any use of public funds, but the reality is that we are dealing here with a monopoly - Major League Baseball - where we simply do not have that choice if we want a baseball team to be located here. I also applaud the Mayor and the Council committees for including language in the amended legislation which addresses an earlier concern, by strengthening contracting requirements for local, small and disadvantaged businesses, and first source employment for District residents.

During the past several weeks, I have made a concerted effort to go around the city and speak with many different communities, to hear their concerns and to educate citizens about the stadium financing proposal. I sincerely and enthusiastically have attempted to garner an understanding of the proposed financing package. In particular, I have tried to correct misunderstandings and emphasize the fact that the funds being used to finance the stadium are new funds that are not being diverted from the city's operating budget and would not be available for any other purpose - schools, libraries, recreation centers, affordable housing or health care - but for the fact that the new baseball stadium would be here. I have had positive interactions with citizens about the three sources of the proposed financing: 1) the stadium rent from the team; 2) special taxes on tickets, parking and items sold at the stadium; and 3) the gross receipts fee on businesses. However, my extensive discussions with residents and businesses have led me to the following conclusion: While the citizens mostly want baseball, even supporters among residents and businesses alike do not want it at any cost, and supporters and opponents are both much more supportive of baseball at the RFK site due to its much lesser cost there than at the South Capitol site.

Although there are environmental issues that would need to be mitigated at the RFK site which could raise the costs there as high as $20 million, the environmental analysis has not even been done for the South Capitol site, which undoubtedly would require some mitigation costs there as well.

Although the potential economic development spin-off benefit of the South Capitol site is one of that site's greatest attractions, the fact of the matter is that economic development will still come to that area, albeit at a slower pace. Several factors will contribute to the revitalization of the South Capitol area in the not-too-distant future, even without a baseball stadium there. These factors include: the District's limited land for development and continuing hot real estate market; the current construction of the new Transportation Department headquarters with its 5,000 employees on 11 acres at the nearby Southeast Federal Center; the zoning and planning for major mixed use residential and commercial development on the remaining 55 acres of the Southeast Federal Center; the spin-off development that already is occurring along M Street Southeast due primarily to the relocation of 10,000 Department of Defense employees from Virginia to the Navy Yard; the current redevelopments of dilapidated public housing with improved mixed income communities; the current plans for a new South Capitol Street gateway and reconstruction of the Frederick Douglas Bridge; and the exciting plans for this area outlined in both the recently approved Anacostia Waterfront Framework Plan, and in the National Capital Planning Commission's Legacy Plan.

Despite claims to the contrary, a new stadium on the RFK site has the potential for significant economic spin-off development as well. Like the South Capitol site, the RFK site is a waterfront location located within the boundaries of the Anacostia Waterfront Initiative. RFK is almost the same distance to the U.S. Capitol building and Downtown Washington as the South Capitol site, just on the eastern axis rather than the southern axis. Adjacent to the RFK site is the 67-acre Reservation 13 site, for which a revitalization plan has been developed by the Mayor and approved by the Council, which includes an extended street grid to connect the Hill East neighborhood to the waterfront, new public parks, and mixed use development of up to 800 residential units, 35,000 square feet of retail space, and a mixture of health care, municipal and institutional uses. The Benning Road area adjacent to the RFK site is crying for development.

One of the concerns that has been raised about the South Capitol site is the fact that only 1,100 parking spaces are provided at the stadium site in the proposed financing plan, and at an estimated high cost of $16.5 million for a new parking facility. Even though we hope and expect Metro to deliver tens of thousands of fans to and from the new baseball stadium wherever it is located, we have been told that thousands of additional parking spaces are needed near the South Capitol site and would be available in private developments already there or in the planning stages. The District has been down this road of relying on insufficient private parking before, with the new convention center, and I am not going to make that same mistake again. By contrast, the RFK site has parking spaces that already exist, and which the District controls, for over 10,000 cars and 300 buses. In addition to not having to include funds for a new parking facility at RFK, the District, pursuant to the Baseball Stadium Agreement, would have the ability to collect parking revenues (not just the parking taxes) at the RFK site for every parking space above the number set forth in the Baseball Stadium Agreement.

The Baseball Stadium Agreement signed by the Mayor and Major League Baseball permits the new stadium to be located at a site other than the South Capitol Site if "the parties mutually determine that some other site should be selected instead." I ask the Mayor and my colleagues to join me in persuading Major League Baseball that it is in the best interests of the District of Columbia and baseball for a new stadium to be located where the residents and businesses of this city strongly prefer its location - the RFK site - where the costs to the District can be substantially reduced. The RFK site provides the best potential for the baseball team and the District to realize most, if not all, of the benefits of the South Capitol site at reduced cost to the District and its businesses, and to realize additional benefits as well, such as the readily available parking and transportation infrastructure. The RFK site also provides a real opportunity to spin-off revitalization improvements where needed and planned for, such as the adjacent Reservation 13 site and the Benning Road corridor east of the Anacostia River.

One provision of the Baseball Stadium Agreement that I would like to see changed, which would do no harm to Major League Baseball or the team that will relocate here, is the provision in section 6.03 that limits the D.C. Sports and Entertainment Commission ("Commission") from using the baseball stadium which we own for not more than 12 days a year. There are numerous provisions in this section which protect the rights of the baseball team without unreasonably limiting the District to only a dozen event days, including provisions for: "(i) written notice to the team of dates to be given not less than 10 days prior to contractual commitment and not less than 30 days prior to the event; (ii) no more than six days of the events shall be during the baseball season and none of the events shall be within five days preceding a scheduled or previously rescheduled baseball game; (iii) the Commission will bear all costs and expenses of the event; (iv) the Commission will provide proper security and police protection during the event; (v) the Commission will hold the team harmless from liabilities and damage arising out of such usage; (vi) the proposed usage will not include the infield unless the usage is for a baseball game; and (vii) the Commission will return the leased property to the same or better condition than existed prior to the usage." The section further allows the team to reject any proposed usage by the Commission under various conditions.

The Mayor and Chief Financial Officer were asked to prepare a fiscal impact statement on the stadium financing proposal which I expect will show that the RFK site has the potential to reduce the cost of the same new stadium required by the Baseball Stadium Agreement by approximately $100 million, or about 20% at a minimum. A corresponding 20% reduction could be made in the amount and duration of the gross receipts fee that would be imposed upon the District's businesses to help finance the stadium. Understand that this estimate does not include what I believe will be the real of the South Capitol site, up to $600 million.

This proposal provides for a reduced cost stadium, a significant reduction in the gross receipts fee paid by the business community, a shorter time line to pay the fee, reduced overall risk, and potential economic development at the RFK site. Mr. Mayor and Members of the Council, the most important benefit cannot be measured by cost, yet its value is tremendous. This recommendation would held unite a very divided citizenry on the issue of a baseball stadium. Let's make this a win-win for all and bring baseball to the District. Time has not permitted me to address all issues; therefore, I remain available to work with you as this legislation is finalized. Unless these changes are seriously considered, I find it extremely difficult to support the stadium proposal. I urge your support for this proposal, the legislative language for which will be circulated as soon as possible.

Attached are options for financing a new stadium at the RFK site: 1) use of the Mayor's proposed gross receipts ("ballpark") fee at substantially reduced rates; or 2) use of the existing 1 surcharge on public utility and toll telecommunications gross receipts tax, plus an even further reduced use of the Mayor's proposed ballpark fee.

cc: Chairman Mark Tuohey and Members of the DC Sports and Entertainment Commission

Options for Generating $21M per annum to support debt service on Ballpark Construction:
D.C. Gross Receipts	Option 1 Fee Schedule	Option 2 Fee Schedule, FY05	Option 2 Fee Schedule, FY06	Option 3 Fee Schedule	Option 4 Fee Schedule
$3-4M	3,300	1,500	-	3,300	3,300
$4-8M	5,000	1,500	-	4,500	4,500
$8-10M	8,500	1,500	-	6,500	6,500
$10-15M	12,000	3,000	-	8,000	10,000
$15-30M	20,000	6,500	0	11,000	16,000
over $30M	38,000	7,500	0	25,000	28,000
Revenue from Ballpark Fee	$20,971,800	$5,560,500	$0	$14,838,800	$17,017,800
To generate remaining revenue in FY2005, change tax rate on Public Utilities & Toll Telecommunications to:
10.5% on January 1, 2005				$7,700,000
10.25% on January 1, 2005					$3,850,000
11% on January 1, 2005		$15,500,000
10% on January 1, 2005
FY2005 Total to Ballpark Fund	$20,971,800	$21,060,500	$0	$22,538,800	$20,867,800
To generate remaining revenue in FY2006, change tax rate on Public Utilities & Toll Telecommunications to:
10.35% on October 1, 2005				$7,315,000
10.2% on October 1, 2005					$4,180,000
11% on January 1, 2005			$20,900,000
10% on January 1, 2005
FY2006 Total to Ballpark Fund	$20,971,800	-	$20,900,000	$22,153,800	$21,197,800

Council Chairman Linda Cropp Memorandum on baseball legislation November 5, 2004

Council Chairman Linda Cropp
Memorandum on baseball legislation
November 5, 2004