Supporters of renovating the City Auditorium have developed a financing plan that would require only a $7.25 million cash commitment from the city.
A group which includes community leaders, elected officials and auditorium supporters has been meeting under the aegis of the Downtown Partnership to explore ways to finance the auditorium’s rebirth. Using a best-case scenario, auditorium backers envision a financial package which includes $4.25 million from tax credits, $1 million from the Colorado State Historical Fund, $1.5 million from tax increment financing, $3 million from private donors and $7.25 million from the city.
According to a city report, the auditorium, which was built in 1922, needs to be completely remodeled, including new HVAC systems, elevators, seating, restrooms, windows, doors and sound system. The report estimates that the would cost at least $17 million.
Because the auditorium is listed on the National Register of Historic Places, it qualifies for federal tax credits for property rehabilitation. The “historic tax credits” amount to 20 percent of “qualified rehabilitation expenditures,” which would total $3.4 million.
“New market tax credits” also might be available to help finance the renovation. The credits are designed to encourage investment in businesses and real estate projects in low-income communities and specified ZIP codes.
Last week, Brian Wishneff of Brian Wishneff & Associates explained the use of such credits to the auditorium group. Wishneff’s company specializes in matching projects with investors. He told the group that, by combining both types of credits, the city could cover 25 percent, or more, of the cost of renovation.
Colorado Springs, which owns the building, is not a taxable entity, and therefore could not use federal tax credits. But the city could sell the credits to private investors, and use the proceeds to help fund the project.
City Councilman Randy Purvis said that the general fund can’t support a multi-million dollar commitment. He said that auditorium supporters should consider asking voters to approve financing though a ballot measure in spring of 2009.
But, the city could bypass public approval of auditorium-related debt by employing certificates of participation. These debt instruments, which were invented in 1980 by Orrick, Herrington and Sutcliffe, a California law firm, entitle investors to pro rata shares in a specific pledged revenue stream, usually lease payments that are subject to annual appropriation.
COPs have been used by both the city and the county.
In 2005, the county financed a new courthouse with COPs after voters rejected a bond issue that would have funded the project. Five years earlier, the city paid for renovations at City Hall with COPs.
To qualify, the issuer must have or create a revenue stream derived from the new or renovated building that will pay off the debt. The revenue stream can be a yearly appropriation from a governmental entity, which is passed through a leaseholder to investors.
The leaseholder only exists for legal reasons and self-extinguishes when the debt is retired.
Since the governmental entity does not assume the COPs payments as a multi-year obligation, but rather one subject to annual appropriation, courts in Colorado and other states have ruled that, unlike general obligation bonds, COPs do not require voter approval.
Opponents of such funding have claimed that COPs have become a means of bypassing laws that mandate public approval for long-term debt.
Chuck Miller of the Colorado Springs Urban Renewal Authority was non-committal about whether the city should use COPs or “bury the auditorium renovation in a (much larger) bond issue.”
“Obviously, it will be much easier to raise money from other sources, from foundations and private donors, if the city commitment is in place, as it would be with COPs,” he said. “Those kinds of donors are unlikely to make conditional commitments.”
Miller also said that other projects planned for the auditorium block could qualify for tax increment financing. Two groups have announced their intention to build multistory, mixed-use projects to the west and south of the auditorium.
Tax increment financing uses the increased tax revenue (the tax increment) that the city would derive from new development. Typically, TIF revenue is used to finance debt issued to pay for a project.
If both projects are built, the auditorium would likely receive between $1 million and $2 million in TIF revenue. But, Miller said, that’s a big “if.”
“Those guys (the developers) have a pretty complex row to hoe,” he said. “With current downtown rent levels, it’s hard to make the revenue/cost numbers work.”
Les Gruen, the chairman of the Urban Renewal Authority and owner of Urban Strategies, a local consulting firm, echoed Miller’s comments about the status of projects on the auditorium block.
“Current rents may just be too low,” he said. “But a company like Nor’wood (owner of the southern half of the auditorium block) can do things that mere mortals can’t do. If they think it makes sense, they can subsidize a new building for a while.”
Gruen said that auditorium supporters should make their case to voters, rather than avoid them by using COPs.
“Ultimately, the auditorium’s long-term viability has to be demonstrated,” he said. “Can it pay its way? How will it be managed? We all love it, but if no one can justify that level of investment, if the leaders can’t sell it to the public, then…that’s what it comes down to. We know that a lot of people will get behind it. We’ll see if that’s enough.”