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City scrambling for solution on EDA fee waiver request from Kalahari Resorts
Date published: 5/7/2010
Fredericksburg's Economic Development Authority appears to be leaning toward rejecting Kalahari Resorts' request to waive its standard fee on a planned bond sale issued through the EDA.
That position has sent City Hall scrambling this week to find a compromise in advance of a Monday meeting in which the EDA is expected to vote on the requested fee waiver.
The working solution proposed by City Manager Beverly Cameron would involve the EDA receiving a portion of the occupancy taxes generated by Kalahari instead of the standard bond fees.
Kalahari is trying to borrow about $265 million for its massive hotel, water park and convention center at Celebrate Virginia South. The Wisconsin-based company would also put about $30 million of its own equity into the financing package.
Kalahari plans to sell about $265 million worth of bonds to investors. The company wants to issue the bonds through the EDA to give them municipal status. Kalahari would be solely responsible for paying investors the interest and principal.
Earlier this year, Kalahari received access to $25 million in tax-exempt financing through the American Recovery and Reinvestment Act. The company hopes to get access to another $10 million of those Recovery Zone Facility bonds.
Investors buying those RZF bonds wouldn't have to pay tax on the income, so they'd accept a lower interest rate. That reduces Kalahari's cost of capital, and part of the savings would be passed along to the city's EDA.
The Fredericksburg EDA's standard fee on bond issuances is one-eighth of 1 percent of the outstanding loan balance. For the $25 million in RZF bonds, that calculates to $31,250 a year.
Kalahari has agreed to pay the EDA's bond fee on the tax-exempt part. The company has proposed to pay $31,250 a year for 10 years--for a total of $312,500 to the EDA, which uses the money for economic development projects in the city.
Go to the Business Browser blog on Fredericksburg.com to read primary documents relating to this article, including Herlong's letter to Kalahari's attorney.