Pawtucket soccer stadium public financing finally closes. But borrowing costs have soared.
Time is money, especially when deteriorating market conditions make borrowing more expensive.
Case in point: a $128 million soccer stadium planned for the Pawtucket riverfront, where delays in issuing bonds to help pay for the project have more-than-doubled the debt service costs to the city and the state over the next three decades, according to bond sale information shared by the city of Pawtucket on Thursday.
Public borrowing in the form of tax-increment financing — in which tax revenue generated by the project would be used to pay back local and state bonds, including interest — is a crucial, if controversial, component of the complex financial puzzle for the Tidewater Landing project. But the numbers have changed substantially in the two years since the state’s economic development agency narrowly approved a reworked financing deal.
At the time of the July 2022 decision by the Rhode Island Commerce Corp. board of directors — with Gov. Dan McKee casting the tie-breaking vote — the plan was to sell $27 million in state and city bonds to supplement loans, private investment and tax credits to pay for the soccer stadium. With interest rates and administrative costs, officials expected it would actually cost $36 million to close the bond sale.
Financing woes ensued, stalling the sale of the bonds along with, temporarily, construction on the site. By the time the Pawtucket Redevelopment Agency charged with selling the city and state bonds actually closed the deal Thursday, borrowing costs soared to $54.3 million: 50% more than prior estimates.
The buyer is an “institutional investor focused on investing in the U.S. municipal, not-for-profit, and sustainable infrastructure sectors,” Grace Voll, a spokesperson for the city of Pawtucket, said in an email on Friday.
Voll did not immediately respond to questions about the reasons why borrowing costs increased.
The same net proceeds of $27 million will be funneled into the stadium project itself. The other half of the upfront borrowing costs includes legal fees, capitalized interest, and debt service reserves, which act as insurance to make sure annual payments are made even if cash flow slows.
Rising interest rates are also upping costs over the long-term. The 30-year repayment plan for the bonds includes $89 million in interest, based on a 7.5% interest rate, eating up two-thirds of the $131.7 million repayment cost. When Rhode Island Commerce authorized the state and local bond sales in 2022, officials expected a $59 million repayment plan over the ensuing decades.
The city and state will have to start shelling out for debt service payment in fiscal 2027 with a $2 million payment. Subsequent annual payments escalate incrementally to a peak of $5.8 million in fiscal 2052.
Matthew Touchette, a spokesperson for Rhode Island Commerce, also said in an email that the repayment plan incorporates “strategic financial planning” to redeem the bonds after the first 10 years, which might lower long-term borrowing costs.
Though less startling, the cost to build the stadium itself is also more, now estimated at $128.4 million, versus the $124 million price tag cited in October. Other sources of funding for the 10,000-seat, United Soccer League Stadium include $43 million in equity from developer Fortuitous Partners; $21 million from the C-PACE loan program for energy-efficient properties; a $10.8 million “tax credit bridge loan,” and $10 million from the city of Pawtucket’s share of federal pandemic relief funds.
Despite the eye-popping hike in borrowing costs, project partners touted the progress achieved, rather than the rising expenses.
“We are all extremely pleased to reach this important milestone and further accelerate the construction of the stadium at Tidewater Landing,” Fortuitous Partners, the City of Pawtucket, the Pawtucket Redevelopment Agency, and Rhode Island Commerce said in a joint statement on Thursday. “We all look forward to cutting the ribbon on the stadium, taking our seats for the opening Rhode Island FC match in this world-class venue that will provide people and families across our state with opportunities to enjoy for years to come.”
Fortuitous has invested $33.9 million into the stadium construction to date, while half of Pawtucket’s $10 million pandemic relief allotment has been spent, the release stated. Proceeds from the state bond sale will not be used until the stadium has been completed, and any increases in construction costs must be shouldered by the developer, according to the terms of the financing agreement between project partners.
With construction of the stadium ongoing, the Rhode Island FC team will play its inaugural, 2024 season at Bryant University, with plans to kick off at Tidewater Landing the following year.