Not Subsidizing the Horses

I have to admit I was pleasantly surprised to be wrong about Redding's ability to drive a hard bargain regarding the proposed California Horse Park (previous blog here).  It's not that I have anything against equestrian events...I just don't think governments should subsidize them.

The McConnell Foundation will pull the plug on plans to build the California Horse Park, the philanthropic organization announced Tuesday.

The foundation decided to put the project out to pasture after rejecting a financing proposal from the city of Redding, which was deemed too expensive. Redding's plan would have forced the foundation to tap its endowment far more heavily than it had planned. "We have spent three years trying to put this project together," Lee Salter, McConnell president and CEO, said in an interview Tuesday. "The entire board was enthusiastic about it. I feel it was unfortunate that the time and cost made the project untenable."

...

In the end, McConnell wanted more dollars for the $100 million project than the City Council was willing to pony up. The city's counter offer would have asked McConnell to front far more cash than the foundation felt it could afford to give.

It's not surprising that the Foundation wasn't fond of the land sale proposed in the counteroffer.  Instead of getting $7 million in cash up front to spend on the horse park, the Foundation would pay $2.8 million to get a $9.8 million piece of property.  The Foundation needs cash to spend on the horse park, and instead is asked to buy property that one has to wonder whether it could find a buyer for any time soon.

On the other hand when it comes to how the sides would recoup their investments...

Under the city's counteroffer, McConnell would have captured all the hotel, sales and property tax at the horse park itself. The foundation also would have levied a $5 surcharge on park tickets through a business improvement district or admissions tax.

That revenue would have netted the horse park about $2 million a year -- substantially more than the $1.7 million a year the foundation had expected to capture through hotel and sales tax countywide from horse park visitors, Redding officials said.

McConnell did not see it that way. The surcharge would have come out of operating revenues, since the foundation hoped to capture that money anyway through ticket pricing that gauged market demand as precisely as possible, said John Mancasola, foundation vice president.

Redding's counteroffer would have cost the foundation $15 million more than McConnell had offered to the city, Mancasola said.

That's $15 million in current-year dollars over the 40-year life of the project.  Ticket pricing is part science, part art form, so I struggle to believe that the Foundation knows the entire surcharge would end up coming out of their operating revenues.  It would be interesting to see the McConnell Foundation's math and assumptions.

I have to wonder whether the spiking cost estimate for the horse park was a bigger reason why the Foundation didn't at least come back with a counterproposal.  $15 million above the self-imposed cap and rising as the clock ticks is impressive...the rate of inflation in construction costs can't explain all of that increase. 

FYI, the reporter's blog has some interesting posts on the topic here, here, and here...some of the same thoughts I had and more, plus behind-the-scenes info.

Would the city have driven as hard of bargain if it weren't having budget problems?  I'd like to think so, but my gut says otherwise.  Redding is ambitious. 

Comments

[trostky]

If the city had $30 million to toss around, the council would have been delighted to jump into the deal. But what city Redding's size has that kind of money?