More costly financing plan for Aloha stadium replacement project goes to private developer

When state officials call for proposals to replace the Aloha Stadium perhaps as early as July, they will ask private developers to meet a large chunk of the expense in a new twist to the plan that will now cost taxpayers more money. long-term.

The change in the ever-evolving public-private partnership plan to redevelop the stadium and surrounding real estate stems from a snag in the initial state funding setup.

The original 2019 fundraising plan called for using $ 180 million in revenue bonds for just over half the estimated $ 350 million cost of a new stadium. However, the State Department of Accounting and General Services later acknowledged that sufficient revenue from new developments at the Halawa site would not materialize soon enough to repay those obligations.

The 2019 formula approved by lawmakers also included $ 150 million in general bonds and $ 20 million in cash, although last year an additional $ 20 million in general bonds replaced cash.

Lawmakers debated this year how to adjust funding, and a split emerged with the House finance committee opposing an original provision in Bill 1348 to trade the $ 180 million in tax obligations with an equal amount of additional general obligations.

Key Senate officials supported a DAGS recommendation to preserve the total funding of $ 350 million. But in a compromise to pass a final version of the bill, which contained other essential provisions to move the bill forward, Senate leaders accepted the House’s leadership position to eliminate tax liability funding without replacement.

So now a private partner will be asked to pay much of the cost of the new stadium when DAGS seeks competitive proposals from three previously qualified development teams, according to Chris Kinimaka, the agency’s public works administrator.

As a result, the state must reimburse the developer, and this long-term expense will certainly be more than what the state would have paid in interest on general bond bonds, as for-profit promoters generally seek returns on investments. much higher compared to tax. free bond financing where interest in recent years has ranged from 2% to 5%.

Sen. Glenn Wakai (D, Kalihi-Salt Lake-Aliamanu), the bill’s main funder and strong supporter of the stadium area redevelopment, is not concerned that the change in funding will harm the project.

“I wish it was $ 350 million in cash, but I respect the money of the chairs (of the committees) who have to balance the budget,” he said. “We will adapt to the financing of this project with what we have and will work with private investors to fill the pukas.”

Representative Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu), who chairs the House finance committee, said the reluctance to swap income bonds for more general ones stemmed in large part from Governor David Ige in February questioned the wisdom of building a new one instead of spending more money on repairing the impossibly rusty 46-year-old Aloha Stadium, which was declared unusable for spectators in December due to costly maintenance issues.

“It raised red flags,” Luke said.

She also said that DAGS has the flexibility to seek new income bond or general bond funds next year or beyond to replace any developer funding.

Kinimaka agreed, but also said that having a private developer paying a large portion of the initial cost of a new stadium would result in higher long-term costs and lower long-term returns for the state.

The exact amount of the costs will largely depend on the developers’ proposals and a final development agreement negotiated by DAGS and the Stadium Authority, a board-run agency that manages the Aloha Stadium and will operate a new stadium.

Three years ago, DAGS estimated it could cost $ 350 million to build a new stadium with around 35,000 seats to replace the 50,000-seat Aloha Stadium. In April, Kinimaka revealed a new estimate of $ 423 million, although a more recent estimate is now below $ 400 million.

If the cost ends up being $ 400 million, a developer could be tasked with funding 58% of the project, or $ 230 million.

Still, Kinimaka said the public-private partnership, or P3 arrangement, should save the state money compared to a traditional procurement scenario where the state chooses the cheapest bid from the bids. qualified.

This is partly due to the fact that the call for proposals will instruct the promoter to maintain a new stadium for 30 to 40 years at a pre-established price to be paid by the state if the prohibited maintenance standards are met.

Kinimaka said this spurred the state partner to build a high quality, sustainable stadium at the lowest price, as opposed to the arrangement that produced an almost immediately dysfunctional Aloha stadium that turned into a nightmare. long-term maintenance.

“Developer P3 is invested in the quality of the facility built and the way it is maintained,” she said in an email. “This principle of a higher cost of capital in exchange for a long-term transfer of risk to the private sector is a key principle of P3 projects.”

DAGS plans to release its request for proposals in July, followed by a negotiated deal in about a year. The opening of a new stadium is not planned before 2023.

DAGS also plans to offer a 99-year lease and redevelopment rights for a balance of 78 acres of the stadium’s existing 98-acre site to a private developer to produce a new residential and commercial community.

This part of the project is designed to generate revenue for the state that can at least partially offset the costs to taxpayers for a new stadium, and could include 3,300 houses, 650 hotel rooms, commercial spaces and offices built on a twenty years.

DAGS plans to release a request in July for potential developers to submit credentials to undertake the project around a new stadium, followed by a request for proposals, and then the selection and finalization of terms with a winning developer by mid-2022.