Advertised at $110M, total cost with interest on playhouse will be closer to $187 million.
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It's not exactly a gamble. Call it a calculated risk.
The unveiling of the design for the proposed Utah Performing Arts Center is a month or two away, with construction to begin in January 2014. But Tuesday, the Salt Lake City Council was still working to fine-tune financing for the $110 million playhouse.
The funding aspect in play is called a "Community Development Area" or CDA. If everything goes as planned, the CDA will bring in $33 million for the theater project over a 25-year period from 2016 to 2040.
While it has been advertised as a $110 million project, the total cost of the mega theater, including interest on the debt, will be closer to $187 million if interest rates were to remain where they are today, about 4.5 percent, according to council budgetary projections.
The debt will be retired by a combination of funding mechanisms, including $15 million in private investment most notably naming rights.
A CDA is a redevelopment tool much like a redevelopment area, where increased property tax revenues from the increased value of the developed property known as increment financing go to the redevelopment agency. In a CDA, however, the redevelopment agency board cannot exercise eminent domain.
The Salt Lake City Council on Tuesday, acting as the RDA board, adopted a CDA for block 70 downtown. The block is bounded by 100 South and 200 South between Main and State streets.
The City Council acting as itself is scheduled to adopt the CDA Feb. 19.
The theater is planned for 137 S. Main St. And according to Stan Penfold, chairman of the RDA, it will spur development on the block, which, in turn, leads to new property taxes.
"It's all timing and economy," he said of how much the CDA would bring. "I'm feeling pretty good we took a conservative estimate."
Both Salt Lake County and the Salt Lake City School District have signed onto the plan that gives Salt Lake City 70 percent of the increment financing over 25 years. The council's vote next week will make that official.
The largest chunk of funding, however, will come from "Statutory Allocation Reduction Revenue" or what city officials call SARR funding. Those are property taxes earmarked to retire the debt on the EnergySolutions Arena and the Salt Palace expansion. Those funds will become available in 2016 and could cover about 70 percent of the construction costs and interest on the playhouse.
RDA Vice Chairman Carlton Christensen said the $187 million debt will be retired by a combination of those three mechanisms in these approximate proportions: private funding, 10 percent; CDA, 20 percent; and SARR, 70 percent.
That, however, could change based on the productivity of the CDA and fluctuations in interest rates.
"If there is an area in the county with high performance in property value, it's downtown," Christensen said. "Property values are increasing. This is a good place for a calculated risk."
Part of the council's optimism is the knowledge that an office tower planned for the southeast corner of the intersection at 100 South and Main is well into the planning stages and will certainly bring a property tax boost to the CDA.
Chicago-based Hamilton Partners already has signed on to build it and is coordinating with theater architects HKS and Pelli Clarke Pelli, said Council Chairman Kyle LaMalfa.
"The creation of the CDA is a significant step forward," he said.