The cost of the replacement for Mellon Arena has soared to $321 million, forcing the Penguins, the state and the city-Allegheny County Sports & Exhibition Authority to pony up more money to complete the project.
At $321 million, the new project cost is $31 million more than the $290 million budget originally set for the arena, which is scheduled to open before the 2010-11 hockey season.
Under an agreement to be considered by the sports authority board today, the Penguins will kick in $15.5 million to help cover the increase, the state will contribute $10 million and the sports authority $5.5 million from sources that could include an existing Mellon Arena ticket surcharge and interest income from new arena bond proceeds.
Project officials were not surprised that the arena cost surpassed $290 million. The original budget was set in 2005 when Isle of Capri Casinos Inc., then bidding for the Pittsburgh casino license, offered to put up $290 million to fund the project.
Penguins Chief Executive Officer Ken Sawyer said yesterday the team considered the $321 million project cost an "excellent result" given inflation, the dramatic spike in gasoline prices earlier this year and the rising cost of construction materials, including steel.
"We're very pleased that it's not more than this," he said. "We have been spending wisely on this project. At the same time, we're going to have a building we're all very proud of."
As part of the deal reached to build the new arena and keep the Penguins in Pittsburgh, the team and the state agreed to split the cost of any increases between $290 million and $310 million. If the total cost rose above $310 million, the Penguins had the right to walk away from the deal, but that won't happen.
"We made a commitment to stay in Pittsburgh a long time ago," Penguins President David Morehouse said.
To cover the additional costs above $310 million, the team agreed to contribute another $5.5 million and the sports authority will kick in the rest.
Sports authority Executive Director Mary Conturo said the agency's share potentially could come from three sources -- the ticket surcharge, interest earnings from the arena bond issue and savings if the garage being built next to the new facility comes in under budget.
Ms. Conturo said the Mellon Arena surcharge generated more than $900,000 in extra revenue last season because of the Penguins' playoff run. She said that if the team gets into the second round of the playoffs in each of the next few years, the surcharge would produce an extra $700,000 annually, money that could be used to help cover cost increases.
The sports authority projects that interest income from the arena bond issue would generate about $3.8 million. Ms. Conturo said the total project cost also includes about $16 million in contingencies. If they are not spent, that would reduce the overall cost of the project, she said.
However, if the sports authority is unable to come up with all or part of its $5.5 million share, which isn't needed until 2010, the city's Urban Redevelopment Authority and the county Redevelopment Authority have agreed to lend the sports authority whatever money is needed.
It would be repaid from proceeds of the sale of Mellon Arena real estate to the Penguins as part of their plan to redevelop the land.
Now that the final project cost has been set at $321 million, the Penguins will be responsible for any overruns above that amount.
The arena deal itself is funded through a $7.5 million annual payment for 30 years from the Pittsburgh casino, $7.5 million a year from a state economic development fund backed by slot machine revenues, and about $4 million a year from the Penguins.
Chuck Ardo, spokesman for Gov. Ed Rendell, said no final decision has been made on the source of funding for the extra $10 million needed from the state because of the cost increase.
Penguins officials said they always thought the arena cost would end up between $290 million and $310 million. At $321 million, the total project cost is only about 3 percent more, they noted.
The new arena will be an environmentally friendly, Leadership in Energy and Environmental Design-certified building. Ms. Conturo said it will be the first LEED certified National Hockey League arena in the country.
The arena isn't the only new project going up in price. The cost of the casino being built on the North Shore has jumped from $450 million to $800 million. The cost of improvements to the Pennsylvania Convention Center in Philadelphia have jumped from $700 million to $790 million this year.
Mark Belko can be reached at firstname.lastname@example.org or 412-263-1262.