Moneyball Maneuvers

Moneyball Maneuvers

A revised financing plan for the new stadium near the Old City includes a loan to cover increasing costs and an expanded tax district to help pay for it.

by scott barker • August 8, 2022
Boyd Sports image.

The City of Knoxville, Knox County and Tennessee Smokies owner Randy Boyd have agreed in principle to a new financing plan to account for rising materials costs for the publicly owned stadium to be built east of the Old City.

New property tax revenues from new developments in the TIF district would go toward paying for infrastructure and to pay back a construction loan from Smokies owner Randy Boyd.

On Friday, the city and county announced the outlines of the plan, which includes a construction loan from Boyd and a major expansion of a special tax-increment financing (TIF) district to cover long-term costs. 

Officials emphasized that the city and county’s upfront costs will remain the same and that Boyd is assuming much of the risk involved in the new arrangement. The total cost of the stadium remains to be determined.

In a joint statement, Knoxville Mayor Indya Kincannon and Knox County Mayor Glenn Jacobs repeated their assertion that taxpayers will ultimately benefit from the project.

“We’re building a public amenity that everyone can be proud of, and we’re adhering to our principles of shared partnership and careful financial stewardship,” Kincannon said. “As I’ve said all along: The public benefits of this stadium must outweigh the costs, and we’re assuring that that’s in fact what’s happening.” 

Jacobs acknowledged the rising costs of the project, but said expanding the TIF district will help revitalize the Magnolia Avenue Warehouse District, which is filled with empty or underutilized properties.

“Inflation and skyrocketing construction costs have forced us to look into other options,” he said. “One way is to expand the TIF district, which will fund the stadium with revenue that would not otherwise be generated.” 

In addition to the stadium, Boyd formed GEM Community Development Group to build three mixed-use buildings immediately outside the stadium, representing an investment of more than $100 million.

City and county officials point to an independent analysis that projects the stadium will have an economic impact of $480 million over 30 years, with more than 400 full-time jobs created.

“This development is important for the continued progress of our community, especially in the all-important 25- to 54-year-old demographic,” Jacobs said. “We continue to lag behind our peers in retaining and attracting this age demographic, and we believe civic furniture like this will give young families more things to do, adding vibrancy to our community.” 

Boyd, whose minor-league baseball team will be the managing tenant of the publicly owned, multi-use stadium, issued a separate statement to Compass.

“This seemed like a reasonable approach to deal with an unanticipated funding gap the project is experiencing due to inflation in the economy in general and in construction, in particular,” he said.

A Change in Plans

At the time that the city and the county agreed to move forward with the project last August, the estimated cost was $80.1 million, minus the land and infrastructure upgrades. Boyd said — and the development agreement among the entities required — that he would be responsible for cost overruns.

But the development agreement, which has not yet been signed and isn’t in effect, stipulates that Boyd is responsible for any costs exceeding a “maximum guaranteed price.” That price hasn’t been set and won’t be until construction documents are complete and prices are locked in.

In the meantime, the prices for construction materials have soared about 20 percent overall and higher for some vital materials such as structural steel. The $80.1 million estimate no longer reflects the actual cost of construction, and officials said the anticipated increase over the estimated price doesn’t qualify as a “cost overrun.”

Still, during a joint interview on Friday, Knoxville Economic and Community Development Officer Stephanie Welch and Knox County Chief Financial Officer Chris Caldwell said Boyd is committed to keeping the project viable.

“Mr. Boyd has stepped up to say, ‘Yes, if there’s a gap, I will front those dollars, I’ll take the risk I won’t get repaid for that,’” Welch said.

The design team has made changes to the stadium to cut costs and some square footage has been sacrificed, but the basic structure remains largely unchanged. The most obvious change is that two buildings with street-level retail space just outside the stadium itself that face Jackson Avenue were reduced in size from two stories to one.

Caldwell said the guaranteed maximum price wouldn’t be set until December, so the actual cost remains unknown.  

Upfront Costs

The city-county Sports Authority will need the full amount of money at the front end of the project so that contractors and suppliers can get paid during construction.

Caldwell and Welch said the taxpayers will pay no more up front than has already been agreed upon.

The State of Tennessee has contributed a $13.5 million grant toward the project, but the bulk of the public financing will come from a $65 million bond issue covered by the city and county. Boyd has already agreed to pitch in another $6 million.

With the additional stadium construction cost still uncertain, Boyd agreed to pay the remaining upfront expenses — essentially loaning the money to the Sports Authority, as Compass first reported last month. 

The amount of the loan and its specific terms, including the interest rate, will be determined once the parties have agreed on the guaranteed maximum price.

“Once all that is collected and put into a bucket, Randy (Boyd) will cover the final cost,” Caldwell said.

While not included in the stadium construction numbers, the city is also paying $14 million for surface infrastructure improvements and Knoxville Utilities Board is making $13.2 million in utilities upgrades.

Welch and Caldwell emphasized Boyd’s financial commitment to the stadium, noting that he’s donating the land for the project — an estimated $10 million gift — and paying about $6 million directly toward construction costs. The Smokies will be making rent payments of $1 million a year for 30 years. All told, officials say, Boyd’s commitment was already $46 million before the latest developments.

Grading and other site preparation work at the stadium begins today. Boyd is picking up the tab while the financing plan is being finalized.

Costs on the Back End

Most of the upfront funding — all but the $13.5 million state grant and Boyd’s initial $6 million commitment — will be borrowed, and therefore must be repaid. 

The debt service on the $65 million bond issue will be determined by interest rates and other factors at the time the bonds hit the market. That won’t be known until close to the time the guaranteed maximum price is determined.

Under both the original and revised funding arrangements, the bonded indebtedness would be paid through new tax revenues generated from stadium operations and GEM Community Development Group’s private development immediately outside the grandstands. Any shortfall would be covered by money from the county’s hotel/motel tax and the city’s general tax revenues.

The infrastructure upgrades will be paid for separately. 

KUB has said utility bills from the stadium and surrounding development will cover the cost of the water, sewer, electric and gas service upgrades.

The city is paying for upgrades to streets and sidewalks around the stadium, plus two entry plazas on the eastern and western sides of the ballpark. The one on the western side, next to the Hall of Fame Drive overpass, will be about the size of Market Square and can be used for public events.

To pay for the $14 million in surface infrastructure improvements, the city created a special TIF district around the stadium north nearly to Caswell Park. The area covers much of the Magnolia Avenue Warehouse District.

“This is a redevelopment area that has been designated for investment because of a lack of investment over a period of years,” Welch said. “So you see a lot of buildings that are underdeveloped. Some blight. Infrastructure that needs improvement.”  

The TIF district designation means that any new property tax revenues generated by new development will be dedicated to the infrastructure improvements. The city expects to see considerable development activity once the stadium is built. 

“This will be new property tax revenue from new private investment,” Welch said. 

Under the new financing proposal, the TIF district would be expanded and any new tax revenues would be used to pay off both the infrastructure costs and the loan from Boyd to the Sports Authority for the additional construction costs.

The city’s infrastructure bill, which will be amortized over 20 years, would take the top priority. The city would get the first $700,000 each year out of the new TIF revenues; Boyd would receive loan payments from any revenues beyond that amount.

“This is not a guaranteed repayment,” Welch said. “We’re not guaranteeing anything. He’s taking the risk.”

TIF District Expansion

The original TIF district extended from the stadium site north to just beyond East 5th Avenue, between First Creek and Hall of Fame Drive. 

Under the new proposal, the district would expand significantly, increasing the number of properties that, if redeveloped, could contribute toward the stadium repayment pool.

On the eastern side of the district, the boundary would be moved from First Creek to Harriet Tubman and Winona streets, from East New Street near First Creek at Austin (formerly Austin Homes) to north of East 5th Avenue.

To the west, the TIF district would extend to North Central Street from Summit Hill Drive to East 5th Avenue, meaning the eastern part of the Old City would be included.

Several properties in the proposed new western portion of the district are already poised for redevelopment. Veteran downtown developers David Dewhirst and Mark Heinz have bought the old Greyhound bus station, a hotel developer has bought property next to Barley’s Taproom & Pizzeria, and the Ephant Group, which has recently bought several downtown properties for redevelopment, has acquired the surface parking lot at the corner of North Central Street and Summit Hill Drive.

In the area around the stadium, Dewhirst and Heinz have made investments, and Boyd has more property outside the stadium footprint.

“We’re anticipating significant development around the stadium,” Welch said. “We want to make sure the money is reinvested back in the community.”

The city has one other TIF district, along the South Waterfront. The area, especially between Chapman Highway and Island Home Park, has seen significant private investment in recent years.

“We have direct experience with this on the South Waterfront,” Welch said. “We have seen this work.”

Kincannon said the TIF district expansion would accelerate the pace of the stadium’s benefits to the community.

“The stadium will be a catalyst that creates new economic opportunities in East Knoxville and brings new quality-of-life improvements to nearby families,” she said.

The new financing proposal would involve changes to the TIF district and the interlocal agreement covering the stadium project. Amendments to both documents require approval from County Commission, City Council and the Sports Authority. 

County Commission is scheduled to discuss the project during its work session on Aug. 15 and vote on the changes on Aug. 22. The Sports Authority and City Council will take up the matter at their meetings on Aug. 23.