City Council

CITY OF FREDERICKSBURG, VIRGINIA HON. MARY KATHERINE GREENLAW, MAYOR HON. BRADFORD C. ELLIS, VICE -MAYOR, WARD ONE CITY COUNCIL HON. KERRY P. DEVINE, AT-LARGE HON. MATTHEW J. KELLY, AT-LARGE HON. GEORGE C. SOLLEY, WARD TWO HON. FREDERIC N. HOWE, III, WARD THREE Council Chambers, 715 Princess Anne Street HON. BEATRICE R. PAOLUCCI, WARD FOUR Fredericksburg, Virginia 22401 Council Work Session July 1, 2013 Introduction to the Hagerstown Suns and presentation of a revised timeline The Council of the City of Fredericksburg, Virginia held a work session on Monday, July 1, 2013, beginning at 5:30 p.m. in City Hall Conference Room. Council Present. Mayor Mary Katherine Greenlaw, Presiding. Vice-Mayor Bradford C. Ellis. Councilors Kerry P. Devine, Frederic N. Howe, III, Matthew J. Kelly, Beatrice R. Paolucci, and George C. Solley. Also Present. City Manager Beverly R. Cameron and Clerk of Council Tonya B. Lacey. Others Present. Bruce Quinn, Majority Owner of the Hagerstown Suns, Jeff Nelson, partial owner of the Hagerstown Suns and John Ferrante, Attorney. Introductions. Mr. Quinn introduced Jeff Nelson, partial owner of the Suns, and John Ferrante, his attorney. He stated that it had been difficult to work out the minor league stadium for the team. He had been working with Winchester, but the pricing didn’t work out. Mr. Quinn said that he had been waiting on a response to the proposal that was sent to the City. He wanted to try and get a timeline that everyone could work with and follow-through with a Memorandum of Understanding (MOU). He stated that he would like to see what makes sense for the City, the Suns and the taxpayers, but in order to do that he needed feedback from the City and the City must be engaged. Mr. Quinn said that on July 31 they would like to have an MOU between the Suns and the City and October 30, they would like to have a signed lease. Mr. Quinn went on to say that a baseball stadium had many benefits; it could be one of the largest fund raising opportunity for charities and youth organizations. The stadium could host many other events such art shows, wine and cheese events and concerts. In the lease proposal the Suns would pay one third of the cost of the stadium and potentially more if they could 1 begin marketing, also he noted the cap on any risk to the City at $50,000 per year and the team would pay everything over the $50,000. This means anything that requires maintenance over $50,000 the team would pay and if all of the $50,000 isn’t used it would get replenished. He said the City would get some return on the profit sharing if it’s successful. The lease is risky for the team and well-constructed. He noted that the October 30 deadline is very important because they have already received 5 bids on stadiums and they must have 18 months to build the stadium or it could not be built for the $29,500,000 and the lease states that the team would have to pay for any overruns, therefore the timeline is very important. He states that this clause would have to be removed from the lease if they are being tied down by the City. Minor league also requires a notice of 18 months for relocation. They feel Fredericksburg is the right place and baseball would bring $2 million to $2.5 million in business and business transactions with other businesses in Fredericksburg. He said they try to do all their transactions with local suppliers. The payroll in Hagerstown in approximately $500,000 and in Fredericksburg it should be $700,000 to $1 million. The admission tax should be approximately $250,000 and 3.5% of all taxes collected would come back to the City. Mr. Quinn stated the team had not heard back from the City Council on their proposals and Mayor Greenlaw corrected him and stated they had received comment from City Council through the staff which was directed by City Council. Mayor Greenlaw stated that this was a business and it needed to be treated as such, but she said the first thing she would ask for from a client would be audited financial statement, a business plan or some performance records or history and the City had not received audited financial statements from the team. She said if you want to be treated like a business then that’s an important part. Mr. Quinn stated that if the City wanted audited financial they are welcome to it, but baseball does not audit their financials. He said the City could pay to audit their financials at any time, and they would offer it up to the City. He said there is no reason to audit because it’s a small business and the team has no debt because it was bought for cash. He said most teams do not have audited financials. Mr. Ferrante stated that they submitted financials for the team to the City Manager’s office in February with an explanation as a privately held company the financials are not audited and he never received a request for audited financials. Councilor Howe stated that because the public process is very time consuming and the use of public funds for this type of project could be risky, he asked Mr. Quinn how the risk are 2 mitigated by the MILB and the MLB. Mr. Quinn said there are rules in baseball and there are certain debt ratios you’re not allowed to go below in baseball. Minor league baseball also requires the submission of outstanding bills that are not paid for the year. He explained that if a team was failing the affiliate baseball would step in, take over and find another owner. Councilor Howe asked what would happen if the public process holds up the timeline and the schedule is not met. Mr. Quinn stated that if the City meets its timelines and the contractor has delays the contractor would be held accountable and would have penalties and he didn’t have a firm answer if the City had delays, but he did say if the delays were too long they would have to evaluate because their lease runs out with Hagerstown next year. Vice-Mayor Ellis stated that he wanted to make sure this was a good business deal and he presented a financial analysis that he created based on the numbers he had and he came up with a negative net present value for the project. He asked Mr. Quinn what he thought of that for an investment. Mr. Quinn said that may not be a good investment for a banker, but it may be a good investment for the City and its residents and for entertainment value. (See attached.) Mr. Nelson explained that he played in the minor leagues for 7 years and 15 years in the major leagues. He said it would mean a lot to the community to have the National’s affiliate so close. It would bring the community together to have a minor league in the area. He spoke of how the players would stay with local families during their time in the minor leagues. He noted that the support in Hagerstown for the team is not there and the facility is very poor. He said the businesses in the City would benefit if the stadium were built here. Mr. Ferrante felt that Vice-Mayor Ellis set the bar too high with his analysis. He said if the City looked at this deal compared to other deals in the industry the City would not see some of the items they are presenting to the City. Vice-Mayor Ellis asked Mr. Nelson if he would invest in something that brings in a negative net value. Mr. Nelson stated that he would if he looked at the overall things it would bring to the City. He said he has seen the benefits of a baseball stadium in a small community. Mr. Quinn stated that there are levels of intangibles that are hard to quantify. Mr. Nelson also added that the tourism money would pick up as well. Councilor Devine stated that her struggle is that the City has not gotten in to the real estate business and that’s what they are being asked to do. The only real estate the City has had to build is schools, Police Station and swimming pool and this is a huge program switch 3 for the City and she was struggling with what appears to be a risky deal. Mr. Quinn said he hasn’t had any counter offers he would like to see what incentives the City has. Councilor Devine noted that there have been other projects proposed in Celebrate VA South, but they didn’t ask the City to build it for them and that’s what is being asked of the City and she said it puts a huge burden on the City. Mr. Quinn stated that there are ways around the cost; he noted there was equity in the team. The ownership has no debt in the team. Mr. Quinn said he’s just waiting to talk to someone on behalf of the Council. Councilor Paolucci asked how this would affect the Ripken Park and she asked were they affiliated with them. Mr. Quinn said they do work with the Ripken Foundation and this would interact nicely. She also asked why the payroll would increase by $250,000. Mr. Quinn explained that the current facility has no suites, no restaurant, it only has bench seating, there are no amenities, it doesn’t offer year around opportunities, and there is no ability to offer different levels of customer experiences. Councilor Kelly stated that the City has looked at other projects that would have large public investments but are not going to have a large return on investment, but they may have secondary benefits. He added that if the City were to build the stadium and something were to happen the City would own a prime piece of real estate and the stadium. He said it’s time to make a decision. Councilor Kelly asked how the Washington Nationals would handle cross marketing. Mr. Quinn stated that what they have proposed in the past was a mini plan of 4 or 5 games here and 3 or 4 games at the big club stadium at a discounted rate. He would like to have a Fredericksburg section at the National Stadium. Mr. Nelson gave a little history on how Mr. Quinn started a business out of the garage with his sister and grew the business to 5,000 employees. He noted how bad the facilities are in Hagerstown. He said the City would not find a person more passionate and easy to deal with to make it profitable for both sides. He noted that Mr. Quinn had a great relationship with the Washington Nationals and they may be able to work something out so that they could have packaged deals with the Nationals. Councilor Kelly stated that if the City was serious about having a minor league team and a multi-use stadium this is the way to do it because it comes with guarantees. He said we want the commitment from the team and the league that they are going to be here the entire time the City is financing the stadium. He noted that the cost of operations, maintenance and 4 running the facility is huge cost that the team is willing to take on. Councilor Kelly urged Council to call Peter Kirk, independent league owner to ask questions. Councilor Solley asked what the advantages of being affiliated with the Suns were and what would they do better to keep attendance up. Mr. Nelson stated that when there is a threat of a team leaving the attendance usually goes up, but with Hagerstown this wasn’t the case. They knew the team was looking to relocate but attendance is still low. Mr. Quinn said when they bought the team they changed the way they reported attendance, but there are other things that hurt the attendance such as the incident when the light pole fell it cause them to hold games at 10:00 a.m. when everyone was working. Another reason the attendance fell was the constant pressure to move. He said the financials and revenue has not gone up or down from ownership to ownership in the past 20 years. He said they profited the first year but lost in the second and third year because of capital improvements. Councilor Howe noted that he has not seen this much support for a city project and this lets him know the message is out there. His biggest concern is the timeline and he said that the City needed to get to negotiations as soon as possible after hearing the public comment on July 9. He was concerned that April 2015 was an aggressive opening date for the stadium. Mr. Quinn said once an agreement was reached on the lease several of the things that need to be done could be done concurrently and that’s what he would ask the City to do. He said he was not trying to make a living off of this, he just wants the citizens to have fun and he does not feel anyone should have to pay a special tax because of the stadium. He said non- profits would make money on this by holding their events at the stadium and there could be concert series held there. He said if Council did not feel that Celebrate Virginia would benefit from a stadium being built there they should vote against it, but he said he could guarantee at least 3,000 rooms would be booked per year, families of the players and the patrons would bring in a lot of money for the restaurants. He was also amendable to adding an additional ticket tax to help cut the cost in the service district. Mayor Greenlaw noted the issues as being how to finance and how much the City should pay and how much the team should pay. Another issue was the team’s performance in Hagerstown. It was mention that they would get involved with the City activities and she asked how involved they were in Hagerstown. She said the team is a business and they must 5 be marketed and promoted and the team has not done well in Hagerstown and she said the City must take that into consideration. Mr. Quinn agreed that the City and the team must have confidence in each other in order to have a partnership. He said now they know what the City’s interests were and they can work from here. Councilor Paolucci asked if something were to happen with the Washington Nationals and they left town what would happen with the Suns. Mr. Quinn explained that they would have the option of getting out of the contract and picking up another major league team. Councilor Kelly asked that the proposed lease be made available for the public to view before the public hearing. He asked if the MOU could be taken care of and signed off on. He also suggested having one voice negotiating with the team for the City and he would like Council to be involved in the discussions, but he did not want to be a part of the negotiating team. Councilor Howe asked that the exclusivity agreement be extended until the 9th and to move forward with the MOU. Councilor Kelly agreed with extending the exclusivity agreement until the July 9 meeting. Mr. Ferrante suggested extending the exclusivity agreement until July 9, Mayor agreed to extend the exclusivity agreement until the 9, but she wanted to hold off on the MOU until that meeting. Mr. Quinn asked that the July 9 Public Hearing be cancelled until more of the financing is in place. He felt this public hearing would be premature because it would be based on hearsay. Council understood the concerns, but because the public hearing was so well advertised they felt it was better to move forward. Mr. Quinn expressed his concern that the public hearing be held last he asked that it be held first. Mayor stated that she was hearing lots of concerns on the price tag and on the special tax district and she felt this would be a good opportunity to air those concerns. Councilor Howe moved to extend the exclusivity agreement to end July 10, 2013; motion was seconded by Councilor Paolucci and passed by the following unanimously recorded votes. Ayes (7). Councilors Greenlaw, Ellis, Devine, Howe, Kelly, Paolucci and Solley. Nays (0). 6  Mr. Ferrante suggested just changing the date on the existing document to extend the exclusivity agreement. Adjournment. There being no further business to come before the Council at this time, Mayor Greenlaw declared the work session officially adjourned at 7:26 p.m. Tonya B. Lacey Tonya B. Lacey Clerk of Council City of Fredericksburg 7