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Neither the U.S. nor the Canadian government is giving Kalahari Resorts any money directly as part of the $25 million in financing
Date published: 1/20/2010
Fredericksburg's Economic Development Authority could take in annual fees of more than $30,000 from Kalahari Resorts for issuing $25 million in bonds to help finance the water-park resort.
Though Kalahari itself would be responsible for paying back the $25 million, which is just 10 percent of the cost of the planned development in Fredericksburg's Celebrate Virginia, the bonds would be issued through the city's EDA. Therefore, the bonds would be exempt from state and federal taxes.
Because of that tax-free status, investors buying the bonds would be willing to accept a lower interest payout than would be demanded for taxable bonds. Tax-exempt bonds typically have an interest rate that's about 1.8 to 2.5 percentage points lower than taxable bonds, said Fredericksburg City Manager Beverly Cameron. Kalahari would benefit from the reduced cost of capital.
Some of that savings would go to the EDA, which charges a fee for acting as the conduit for the bond issuance. Since 2007, its annual fee has been one-eighth of 1 percent of the outstanding debt balance. That would translate to Kalahari paying the EDA a $31,250 fee in the first year of the $25 million bond issuance.
The EDA distributes some of the money from bond issuance fees through its JumpStart grant program, which is intended to support economic development in the city. Among the grants the EDA has made over the past year are $50,000 for the proposed riverfront park, $3,000 for the Fredericksburg Sister City Association's "Festival Francais" and up to $8,500 for Huck's restaurant to install landscaping and a fountain behind the planned restaurant at 623 Caroline St.
Kalahari worked together with the city, the EDA and Celebrate Virginia developer the Silver Cos. to apply for access to the low-cost financing provided by the Recovery Zone Facility Bonds that are part of the American Recovery and Reinvestment Act.