New arena costs OK'd
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As if winning the Stanley Cup isn't tough enough, Sidney Crosby and his Penguins teammates could be the key to keeping taxpayers off the hook for a cost increase in the construction of the new arena.
The deeper the Penguins march into the playoffs, the greater the chance the city-Allegheny County Sports & Exhibition Authority will able to come up with its $5.5 million share of the $31 million increase without tapping taxpayer-funded loans.
The increase will push the cost of the Mellon Arena replacement to $321 million, an amount unanimously approved yesterday by sports authority board members. With the total project cost established, the team now will be responsible for any costs exceeding $321 million.
To cover the $31 million, the Penguins have agreed to pitch in $15.5 million and the state $10 million. The sports authority is on the hook for $5.5 million, and that's where the team's performance comes into play.
One of three potential sources the authority is considering to produce its share is a ticket surcharge that generated an extra $925,000 last season because of the team's long playoff run.
It marked the first time the surcharge produced revenue above the amount taken by the team to defray Mellon Arena operating costs. The sports authority and the Penguins believe the surcharge could produce an extra $700,000 in each of the next two years if the team makes at least the second round of the playoffs.
"The Penguins are telling me that I should be comfortable that we can count on two years of playoffs," Ms. Conturo said.
The authority also is looking to interest income from the arena bond issue and possible cost savings on the garage that is part of the project as other possible sources.
But if they don't pan out, the city Urban Redevelopment Authority and county Redevelopment Authority are required to provide up to $5.5 million in taxpayer-backed loans to cover the sports authority's share.
The loans would be repaid as Mellon Arena land is sold by the sports authority to the Penguins for redevelopment purposes. Ms. Conturo is hoping the loans won't be needed.
"A lot of it is dependent on how quickly we draw down money, what reinvestment rates we can get on money and how the Penguins do," she said. "We're anticipating that we will be able to provide a large part of that $5.5 million ourselves."
The Penguins have blamed the increase in the arena's cost on inflation, the dramatic spike in gasoline prices earlier this year, and the rising cost of construction materials, including steel.
The original $290 million price tag was established in 2005, when Isle of Capri Casinos Inc. offered to build the team a new home as part of its bid for the Pittsburgh slots license.
Ms. Conturo said both the sport authority's consultants and the state viewed the increases as "reasonable" given the circumstances.
"It surprised me that it didn't increase more," city URA Executive Director Rob Stephany said. "In the last five years, we've seen a 50 percent increase in construction costs. I'm actually surprised they were able to keep it where it is."
Under the deal reached last year to build a new arena and keep the Penguins in Pittsburgh, the team and the state agreed to split any cost increases between $290 million and $310 million.
What was not known until yesterday was who would pay for increases above $310 million. That was settled with the Penguins and the sports authority splitting the difference.
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.
With the agreement on the final project cost and the funding for the $31 million in increases, the Penguins are formally tied to Pittsburgh for the next 29 1/2 years.
Penguins Chief Executive Officer Ken Sawyer called yesterday "truly a great day" for the community and fans.
The arena, being built in Uptown on land bordered by Centre Avenue, Washington Place and Fifth Avenue, is on schedule to open before the 2010-11 hockey season.
First Published November 14, 2008 12:00 am