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Article posted: 12/25/2013 6:28 AM

FBI probe shows risks of local stadium boom

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Bloomberg News

The top elected official in Ramapo, N.Y., Town Supervisor Christopher St. Lawrence, wanted a minor-league baseball team and a new stadium to house it. The park would cost about $20 million and taxpayers wouldn't have to cover it, he and paid consultants predicted three years ago.

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Instead, taxpayers are responsible for as much as $60 million in stadium expenses, according to state Comptroller Thomas DiNapoli. Ramapo's finances are the subject of a Federal Bureau of Investigation probe that became public after agents descended on the town hall about 38 miles northwest of New York City in May. DiNapoli says the town, which backed a $25 million tax-exempt bond issue in 2011 for the venue, is the state's most fiscally stressed.

"This is the most dramatic scenario with a stadium I've heard of," said John Dittrich, who has more than 40 years of experience as an executive in professional baseball. "If taxpayers are mad about the way it went down, they're not going to be customers, and it hurts."

From 1993 to 2003, at least 86 minor-league baseball stadiums collectively costing almost $1.5 billion opened in the U.S. and Canada with at least partial public funding, according to public documents and local news reports. It was the biggest boom in the more than 100-year history of minor-league baseball, almost 60 percent more than the number that opened in the 1930s, when President Franklin D. Roosevelt used ballpark construction to create jobs during the Great Depression.

Almost $1.3 billion of the funding for the construction was backed by taxpayers, according to the documents and reports. The average price of the stadiums almost doubled to $21.5 million in the last six years of the boom, from $12 million in the first five years.

The price rose as localities dueled for teams that follow the profits generated by new stadiums, said Andrew Zimbalist, an economics professor at Smith College in Northampton, Mass., who studies stadium financing. To get taxpayer support, politicians too often make promises that don't come to fruition, leaving localities to cover debt payments and maintenance costs that sap funds that could be spent on parks, schools, or police, he said.

"If taxpayers are supporting a stadium because they believe it'll help their city socially and culturally, then fine," Zimbalist said. "If they're doing it because they've been sold a bill of goods that it'll be a boost to the economy, then no, it's not a good expenditure of funds."

Provident Bank Park opened in Ramapo, a municipality of 127,000 people, in 2011. It included amenities that became common during minor league stadium construction from 1993 to 2003, such as club suites, wider seats and field-side taverns to replicate the major-league experience.

Moody's Investors Service cut Ramapo's rating two steps to A1, the fifth-highest level, in 2012, citing "considerable exposure" to the debt used to fund the stadium and two years of deficits. In October, Moody's confirmed the grade and assigned a negative outlook.

The town's finances have deteriorated because of spending on stadium costs, putting taxpayers on the hook, said Michael Castelluccio, editor of Preserve Ramapo, a website that's become the public face of opposition to the stadium and St. Lawrence.

St. Lawrence said by email that Ramapo has cooperated with the FBI and hasn't received any information on the investigation's status. The town has budgeted $200,000 for its share of stadium maintenance for 2014, and it hasn't had to pay for debt service, he said.

"It was important to me to bring a first-rate stadium facility to my community to promote athletics and recreation, while simultaneously seeking economic development and safe, affordable, family entertainment," St. Lawrence said.

Christos Sinos, an FBI spokesman in New York, declined to comment on the investigation.

Of the 86 stadiums built from 1993 to 2003, at least 26 used taxpayer funding to pay for debt service and maintenance when elected officials said they wouldn't, failed to meet economic-development projections or lost the teams that said they would play there, the documents and news reports show.

The 26 collectively cost $490 million, with 90 percent of that backed by taxpayers.

The team playing in the $12 million Bernie Robbins Stadium in Atlantic City, N.J., which opened in 1998, folded in 2009. Wilbur Banks, a spokesman for Atlantic City Mayor Lorenzo Langford, said now renamed Surf Stadium has hosted youth baseball tournaments and concerts since the team left.

In 2004, Ohio declared a fiscal crisis in Eastlake, partly because of costs associated with the $24 million Classic Park. A year later, a plaque outside the ball field that said "The House that Dan Built," a reference to former Mayor Dan DiLiberto, who backed the stadium, was taken down.

"It was the house the taxpayers of Eastlake built and are paying for, for the next 30 years," said Ted Andrzejewski, the current Eastlake mayor.

DiLiberto, who now lives in Fort Myers, Fla., said the stadium benefits the city and the administration that followed him should have been more creative in finding extra funding. He said he has the plaque, which was originally placed at the stadium by the engineering firm that built it.

Exaggerated stadium pledges by officials are common, said Miles Wolff, commissioner of the independent Canadian American Association of Professional Baseball, known as the Can-Am league, which helped bring baseball to Ramapo. Wolff is often credited with reviving minor-league baseball in the 1980s as owner of the Durham Bulls, the team that gained fame with the movie "Bull Durham."

"The politicians will promise anything, and they'll over- promise," Wolff said by phone. "If you don't have taxpayer support, you can't build a successful minor league stadium."

The stadium building spree had its roots in a December 1990 agreement between Major League Baseball and the National Association of Professional Baseball Leagues, the organization that represented Minor League Baseball at the time. The deal followed a decade of revival for minor-league baseball. In the 1970s, teams could be bought for $1 and debt payments. By the early 1990s, they were bought and sold for seven figures.

The accord limited the number of teams. It required that stadiums meet similar standards to those in the big leagues. Fields needed to be free of defects that could cause players to trip and have tracks within 15 feet of the outfield walls to warn players of their proximity. It also included measures to generate more revenue, including a minimum number of concessions based on the number of seats.

Major-league organizations such as the Toronto Blue Jays threatened to move teams from stadiums in cities such as Syracuse, N.Y., without ballpark upgrades. Cities reacted by building stadiums that would draw bigger crowds, with features resembling the experience at major-league parks at a fraction of the ticket price, said David Chase, former publisher of Baseball America, a magazine that covers every level of baseball.

The fight among municipalities using stadiums to lure teams hasn't stopped, though the boom has slowed. Ottawa, Canada's capital, lost its Triple-A Lynx to Allentown after the 2007 season when the Pennsylvania city built a new stadium.

The move left Ottawa without a team for the $17.6 million stadium it opened in 1993. The Rapidz, a Can-Am league team, played there in 2008, followed by the semiprofessional Fat Cats from 2010 to 2012. No professional team played there in 2009. The stadium also wasn't home to a professional team in 2013. In October, the city council agreed to enter a new lease with a Can-Am team starting in the 2015 season.

Taxpayers are asked to help build stadiums because minor league teams, even most of those affiliated with major-league clubs, can't afford to build on their own, said Chase, who is the commissioner of the Prospect League, a summer collegiate wood-bat league based in Arlington, Tenn. Cities and teams hire consultants to project the cost of the stadiums, the amount of revenue they'll raise and the benefits they'll bring to the local economy, he said.

"The consultants create their own self-importance," Chase said by phone. "That's really part of the fallout we're seeing with these new ballparks built in the '90s and 2000s. They used a lot of these folks and built a lot of these ball parks that are expensive. They don't have a crystal ball and don't know what will happen to the economy."

In Ramapo, Fishkind & Associates, an Orlando, Fla.-based economic consulting firm, was hired.

Fishkind's report said the stadium could be built for $20 million, using comparisons with venues built in or before 2002 that showed the average per-seat cost among those parks to be about $3,581. When DiNapoli, the New York Comptroller, reviewed facilities built between 2005 and 2010, he found per-seat costs ranging between $3,900 and $6,788, according to his 2012 audit of the Ramapo stadium's finances.

The Fishkind report also projected attendance of 166,576 in its first season, growing to 215,100 by the fifth year, the report said. The Rockland Boulders' best season was in 2012 when 161,375 attended, according to the team's website. That dropped to 143,231 this year. St. Lawrence said rain diminished attendance this year.

Kevin Plenzler, an associate with Fishkind, said the cost estimate was based on information from the town. The firm developed attendance projections by studying numbers for other independent-league teams in the region and local demographics, he said. At the time, they expected the economy would recover faster from the recession that ended in 2009, Plenzler said.

"We couldn't predict things like the debt ceiling and budget fights in Congress," he said by phone. "Those elements are going to impact the overall gross domestic product of the country, which impacts everything down to going to a baseball game."

Dittrich, the retired baseball executive, was hired by Fishkind to help run comparisons with other minor league ballparks as part of the firm's report.

Town officials "were trying to come up with ways to justify the construction cost," Dittrich said by phone. "They were trying to sell it to the public."

The public didn't buy it. In May 2010, the Ramapo town council approved a resolution giving the town's backing to $16.5 million in bonds to be sold by the Ramapo Local Development Corp. to fund the stadium. That August, more than 70 percent of voters rejected the borrowing. After the vote, St. Lawrence said he wouldn't use taxpayer funding, DiNapoli's audit said.

Yet the town continued to pay for improvements on the property and in February 2011, council members approved a resolution putting the town's guarantee on $25 million in short- term bonds to be issued by the RLDC, the audit showed. Unlike long-term borrowing, short-term notes aren't subject to voter referendum rules, according to the audit.

St. Lawrence said turnout was low, "with my political opponents doing a good job at bringing out the 'no' vote." He said his push for the ballpark was part of a wider philosophy of bringing sports -- and the accompanying health benefits -- to his town.

The stadium is "in the best interest of the town of Ramapo -- as a quality-of-life enhancement, as economic development, as affordable family entertainment and recreation, as a construction job stimulus in dire economic times," St. Lawrence said.

At least one local fan agreed. Mike Connolly brought his family to a game against the New Jersey Jackals on an August evening at the 4,500-seat park, where the outfield frames a mountain view. He said an outing in Ramapo for his family of five can cost $100, compared with $600 to attend a Yankees game in the Bronx.

"The baseball fans can't get caught up in everything that's going on with the town," Connolly said while standing on the concourse between home plate and first base. "You do have to wonder, though, what they were thinking, dumping so much money into a stadium during these tough times."

Development corporations are private, not-for-profit entities meant to spur economic development.

"As we've seen in the case of Ramapo, ultimately whatever good intent there might have been there, we think taxpayers are going to be on the hook for many millions more than had first been contemplated," DiNapoli said in an interview in Albany. "That's a risk that will undercut the long-term financial strength of a municipality as well."

St. Lawrence said using the RLDC was the most cost- effective way to build the stadium and it needed the town's backing to secure financing at a lower interest rate because the development corporation had no credit history.

Located in an exclusivity zone around Major League Baseball's New York Yankees and Mets, Ramapo couldn't become home to a minor league affiliate of a major-league franchise under rules meant to protect the big-league clubs from competition. So St. Lawrence partnered with investors who were forming a team with the Can-Am league. Unlike minor league teams connected with a major-league franchise, independent-league players don't have contracts with major-league teams.

"St. Lawrence is the example of the politician who really, really wanted a stadium and team," Wolff, the Can-Am commissioner, said by phone. "He may have pushed a little hard. He believed his community needed it."

Two New Jersey stadiums were among those built for independent-league teams. The $12 million, 5,900-seat Sandcastle Stadium in Atlantic City, later renamed Bernie Robbins Stadium, opened in 1998 as the home to the Atlantic City Surf. The team started as part of the independent Atlantic League and later joined the Can-Am.

The stadium was built with the idea that the city's casinos would support a family-friendly offering in the gambling town. They didn't and the team shut down, said Kim Butler, a spokeswoman for New Jersey's Casino Reinvestment Development Authority, a public agency that provided $9 million toward the stadium's construction.

The Newark Bears, which also started as an Atlantic League team and later joined the Can-Am, opened a $34 million stadium in 1999. The stadium, built at $11 million more than its original price tag, was supposed to bring baseball back to downtown Newark, yet the team couldn't attract fans. Newark and Essex County each pay about $1.3 million annually for debt service. In 2008, the team filed for bankruptcy.

"There's a pattern with these stadiums," said J.C. Bradbury, a sports economist at Georgia's Kennesaw State University. "They always promise more benefits than they deliver and cost more."

In Ramapo, the Fishkind report also projected that by the third year, when debt-service payments would start, the development corporation would have a surplus from stadium revenue. Fishkind's feasibility study was based on a ballpark that would cost $20 million. Yet the town spent about $35 million buying and developing the property and then backed the $25 million borrowed by the RLDC, according to DiNapoli's audit.

St. Lawrence said there's no reason to conclude that the RLDC won't be able to cover the debt. The original securities, which didn't require voter approval, have been refinanced, St. Lawrence said.

"The community had a point of view and the town board still went ahead with the project using a different financing mechanism that did not require the vote," DiNapoli said.

About two weeks before Ramapo was scheduled to sell $39 million in long-term bonds in May to pay off short-term borrowing and fund capital improvements, the FBI showed up at the town hall. Ramapo pulled the sale and sold short-term notes.

In the offering statement, Ramapo disclosed that the warrant for the search allowed the FBI to gather information on its finances since 2009, securities issued by the town and the RLDC, bank deposits, correspondence with auditors and the transfer of funds between the town and Provident Bank, which owns naming rights to the stadium and helped finance a related housing project.

"Due to client confidentiality policies, we cannot comment on any specific client, banking matters or transactions," said Suzanne Copeland, a spokeswoman for Montebello, N.Y.-based Sterling National Bank, which merged with Provident in October.

Castelluccio, the Preserve Ramapo editor, said he has been giving the FBI information about the ballpark and its financing for more than two years.

"All of this started with us questioning how they could have funded the ballpark with the referendum going against the borrowing," Castelluccio said. "Why would anybody in their right mind build a stadium this pricey?"

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