Richmond will miss deadline for stadium bonds, potentially raising costs (2024)

The city of Richmond will miss a deadline for the Diamond District stadium project, potentially raising its cost by $24 million, a city official said late Monday.

Had the city been able to issue bonds to pay for the minor league baseball stadium by June 30, it could have seized the state sales tax revenue generated from the project. A month ago, Mayor Levar Stoney said he was confident the city would meet the deadline.

But Lincoln Saunders, the city’s chief administrative officer, said the city will not be able to issue the bonds in time, citing a lawsuit that has drawn out the process. Although the suit was thrown out by a Richmond judge, city leaders are waiting to see if the plaintiff will appeal.

“Due to a frivolous lawsuit that was dismissed on all counts, the city will not be able to issue the general obligation bonds to fund the stadium before the state sales tax deadline on July 1,” Saunders said.

In Virginia law, a provision allows localities to claim the state sales tax generated from public projects, such as stadiums. But the law expires July 1, and after that, the tax money will go to the state.

A lawmaker tried to renew the current law, but the bill was swept into the debate around Gov. Glenn Youngkin’s failed attempt to build an NBA and NHL arena in Northern Virginia, and the bill died.

Leaders from the city of Richmond said that if they could issue the bonds to pay for the stadium by June 30, they could collect all of the state sales tax for the life of the project.

But the city will miss the deadline. Saunders said Richmond is exploring all other avenues to capture the sales tax incentive. It is unclear what other pathways exist for the city to claim the $24 million.

City’s checklist

Much work remains for the city, its Economic Development Authority and the Flying Squirrels. The authority needs to strike a lease deal and a stadium development agreement with the Squirrels. To build the stadium, the Squirrels are contracting with Odell, a national design and engineering firm, and Machete Group, a sports and real estate advisory firm.

Saunders said the city and authority are closing in on these two agreements. The city still plans to break ground in the coming month, he added.

The city must also issue a prospectus advertising the bonds, finalizing the details and publishing an interest rate.

There will be two sets of bonds in the Diamond District project. One will be worth about $135 million and will pay for stadium construction. The city will use tax revenue from the Diamond District to pay off the debt.

The other set will be worth about $33 million, issued by the Economic Development Authority to pay for the neighborhood’s infrastructure. The Squirrels’ lease payment — expected to be $3 million annually for the first decade — will pay that debt.

Earlier this month, the authority released a preliminary prospectus for the infrastructure bonds. An interest rate was not listed in the document.

The city and the authority will put these bonds up for sale this week, Saunders said. The bonds will pay for the streets, water and electrical lines that will go into the stadium and the new neighborhood.

Goldman’s suit

But a lawsuit that Richmond lawyer Paul Goldman filed last month has held up the bond process.

Goldman tried to force the city to hold a referendum before issuing the bonds. While counties in Virginia cannot issue bonds until after voters approve, cities can float them without voter approval.

Though Richmond Circuit Court Judge W. Reilly Marchant threw out Goldman’s suit, Goldman can still appeal through next week. He said Monday he is still considering whether to do so.

The interest rate

The city said it expects to sell the bonds with an interest rate of about 4%.

But Goldman said that because the bond buyer will have to pay taxes, the interest rate could be higher than 4%. While some bonds issued by localities are tax-free, these bonds will require the buyer to pay a federal income tax.

The higher the interest rate, the more it will cost the city to construct the stadium. City leaders project the stadium to cost $110 million or more.

Originally, the city planned for the Diamond District’s community development authority to issue the bonds. But interest rates have risen in the past two years, and those bonds would have carried a rate of roughly 8%.

Earlier this year, the city revised its financial approach, saying the city itself would issue the bonds. Because the city has a strong credit rating, the bonds are seen as a more sure investment. Because the city is very likely to pay off its debt, it can issue bonds at a lower rate of almost 4%.

The city said it will save millions of dollars over the life of the project.