Did Wichita forget the interest?

In a presentation, Wichita economic development officials ignore the cost of borrowing money.

In a presentation to the Wichita City Council on March 5, 2019, the council was shown a pro forma cash flow statement regarding the new baseball stadium.

The conclusion reached by city officials was: “The $38M equates to over 50% of the $75M stadium debt repayment.” ¹

$38M, or $38,000,000 refers to the sum of the amounts the city expects to receive from these sources:

• Incremental sales tax (used to pay STAR bonds)
• TIF revenue (incremental property tax revenue)
• CID (the extra sales tax customers will pay)
• Naming rights
• Management fee (the rent the new team plays the city)

The pro forma statement shows these cash flows starting in 2020 and continuing through 2042.

$75M, or $75,000,000, refers to the cost of the baseball stadium. (In this illustration the city has not included the $6,000,000 the city plans to borrow to pay for the pedestrian bridge and riverfront improvements.)

What’s missing? Interest on borrowed money.

If the presentation said, “The $38M equates to over 50% of the $75M stadium debt principal repayment,” that would be correct. But to tell the council that it costs just $75,000,000 to repay the stadium debt ignores the fact that the city is borrowing this money.

There will be a lot of interest to pay. We don’t know how much, as the bonds have not been sold, except for the STAR bonds. The city has planned to borrow $42,140,000 in STAR bonds. In the disclosure for these bonds, the interest payments alone total $24,647,850. In some years the interest payment alone is $1,828,556. ²

Citizens should ask the city what will be the total cost of repaying the stadium debt, and not settle for answers that ignore millions of dollars in interest.

—
Notes