Recession leaves taxpayers paying much more of Consol Energy Center debt
July 15, 2014 12:17 AM
The state has been forced to dole out more money toward Consol debt because of a little-known provision in the agreement funding construction of the arena.
By Mark Belko / Pittsburgh Post-Gazette
Under the 2007 deal cut to build Consol Energy Center, the state’s contribution was set at $7.5 million annually for 30 years, but in reality, taxpayers have ponied up far more than that and likely will be on the hook for even more in the years ahead.
Since 2009, state taxpayers have shelled out an extra $5.08 million to cover shortfalls in the money needed to pay off the debt on the $321 million arena, and the state is estimating that it will need another $5.6 million over the next five years for the very same purpose.
That’s in addition to the annual $7.5 million in payments the state is contractually obligated to make.
The state has been forced to dole out more money because of a little-known provision in the accord.
As part of the deal, the state agreed to guarantee payment of the $313.3 million Pittsburgh-Allegheny County Sports & Exhibition Authority bond issue to fund the construction.
It did so because it thought it could save money by getting a better rate on the variable rate bonds.
At the time, it was thought that the 30-year financing plan put together to build the arena — $7.5 million a year from Rivers Casino, $7.5 million a year from a state economic development fund financed by gambling revenues and $4.1 million a year from the Pittsburgh Penguins hockey team — would be enough to make the annual debt payments.
That has not been the case.
Mary Conturo, SEA executive director, said the financial crisis and recession caused the rating of the bond insurer to be downgraded, forcing up interest rates and leaving a shortfall in the amount needed to make the repayments.
“It was all tied to the interest rate. Those bond holders were looking to buy triple A bonds. Then all of the sudden they were buying double A bonds or single A bonds or whatever,” she said.
Jay Pagni, spokesman for Gov. Tom Corbett, said the state had no choice but to make up the shortfalls because, in essence, it is serving as the equivalent of the co-signer on a loan.
“The governor’s office is aware of this and is taking the appropriate steps to make sure we do have the appropriate amount of funding for the long term,” Mr. Pagni said. “It is a commitment undertaken on behalf of the commonwealth, and our job is to ensure that we follow though on those commitments.”
The agreement was reached under former Gov. Ed Rendell, one of the architects of the plan to build the arena and keep the Penguins in Pittsburgh.
Not everybody is happy about the state’s role in guaranteeing the bond repayments.
State Sen. Jim Ferlo, D-Highland Park, said he’s not sure “any of us knew what the specificity of the deal was” when it was crafted seven years ago.
He said he didn't know the state would be responsible for shortfalls.
“I don’t know why they would have done those kinds of bonds and why the state taxpayers should be on the hook for it,” he said. “The Penguins and their billionaire owners should be on the hook for some of the debt.”
The amount the state has had to kick in each year has varied. It was $2.8 million in 2009, $163,885 in 2010, $96,496 in 2011, $544,683 in 2012, $736,852 in 2013 and $625,131 this year.
Ms. Conturo said the rating of the bond insurer, Assured Guaranty, was upgraded in March.
That hopefully “will relieve some of this tension” and perhaps cut or eliminate the extra payments, she said.
Nonetheless, the state is budgeting about $1 million annually over the next five years to cover possible shortfalls.
All of the money has come out of the same gambling-backed economic development fund used for the state’s annual $7.5 million arena payment.
“As a matter of practice we would want to have more budgeted in the event of a larger shortfall,” Mr. Pagni said.
“It’s better to anticipate a higher cost and then come in at a lower cost. It’s budgeting principles 101, if you will.”
Since the original deal, the Penguins’ annual contribution also has jumped from $4.1 million to $6.1 million because of a variety of factors, including increased project costs and construction of additional parking.
Mark Belko: firstname.lastname@example.org or 412-263-1262.
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