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City scrambling for solution on EDA fee waiver request from Kalahari Resorts
Date published: 5/7/2010
Kalahari has asked the EDA to waive the fee on the roughly $240 million in bonds that it plans to issue through the EDA and sell as a taxable municipal bond in a private placement to institutional investors.
Kalahari has indicated it wants to use the municipal structure to avoid the financial reporting requirements of a corporate bond, and if the bonds are bought in Virginia investors could gain some tax advantages.
Kalahari says the market is currently pricing these types of bonds at about an 11 percent interest rate. The company has asked the EDA to waive its fee on the taxable bond to help make the project--which it says will have a domino effect on Celebrate Virginia's development and bolster city tax revenues--financially feasible. The EDA's standard annual fee on a $240 million issuance would be about $300,000.
EDA Chairwoman Dana Herlong wrote Kalahari's attorney a letter last week indicating that the "EDA has historically rejected waiver requests, and members appear to have little inclination to consider doing so in the near future."
That led city staff this week to try to come up with a compromise, which remains a work in progress.
Cameron's proposal involves the EDA getting $125,000 a year out of the occupancy taxes generated by Kalahari for 10 years. That's 42 percent of the EDA's standard fee, but it represents a $1.25 million payment over 10 years.
Including the fees on the tax-exempt bonds, the EDA would be taking in about $1.56 million over 10 years for issuing the bonds--for which the EDA would bear no financial risk.
In 2007 the city hammered out an incentive package with Kalahari that agreed to return 47.5 percent of the taxes generated at the resort back to Kalahari for 20 years. The remaining 52.5 percent would stay with the city and is estimated at about $4 million a year in new tax revenues.
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.