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Board rejects Kalahari fee deal page 2
EDA split over Kalahari fees; compromise proposal dies

Date published: 5/15/2010


Spotsylvania County officials indicated this week that they would be willing to accept a fee similar to Cameron's proposal to run the bonds through that county's EDA. In addition, the executive director of the Stafford-Staunton Industrial Development Authority indicated to city officials this week that he believes his board would agree to handle the bond issue at a fee of $480,000 over 10 years--even less than what Kalahari would pay under Cameron's proposal.

The Stafford-Staunton IDA is a separate entity from the Stafford County Economic Development Authority, and is part of a special finance program run by the Virginia Municipal League and Virginia Association of Counties.

Fredericksburg's City Council would have to grant its approval if the bond issue were to be handled by any EDA other than the city's.

Councilman Matt Kelly, who was the only City Council member at yesterday's meeting, said the city would consider "any and all options" to help the Kalahari project move forward.

After their tie vote, EDA members spent almost two hours arguing over how willing Kalahari had been to negotiate with them, and discussing whether there was any use sending additional offers to the company. Herlong said she thought it was "regrettable that Kalahari has chosen not to negotiate," but Wilson and others pointed out that Kalahari had come around on a compromise on its original proposal, which was that there be no fees.

Pullen said he feared that approving Cameron's proposal could set a precedent whereby future businesses wouldn't be willing to pay EDA fees, which the authority uses to make grants to small businesses and nonprofits for everything from facade improvements to arts festivals.

Colangelo, Wilson and O'Neill argued that Kalahari was simply doing all it could to reduce its cost of borrowing, and that by shopping around, it had established a market rate for the bond fees that Fredericksburg could compete with or not.

"We either accept it or we watch that money go to the Stafford-Staunton IDA or to Spotsylvania," Wilson said.

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What's going on?

Wisconsin-based Kalahari Resorts is planning to build a resort and water park in Celebrate Virginia. To finance the project, Kalahari intends to put up $30 million of its own money, plus issue two bond sales to investors: a tax-exempt bond for at least $25 million and a $240 million taxable bond.

Why is the Fredericksburg Economic Development Authority involved?

If the EDA issues the taxable bonds, they'll be municipal, not corporate, bonds. That would save Kalahari time and money with Merrill Lynch, the bank that is handling all of the bonds, and would help Kalahari avoid some of the costly financial reporting requirements that come with corporate bonds.

So what's the problem?

Kalahari agreed to pay the EDA $312,500 over 10 years on the tax-exempt bonds. But the company wanted the EDA to waive its fees on the $240 million taxable bond. The EDA declined. So the city, which is expected to net more than $3 million in annual tax revenue from Kalahari, suggested a compromise. Yesterday the EDA turned that down, too.

So now what?

Kalahari is exploring the possibility of issuing the bonds through another nearby EDA, which means any fees it pays will support economic development projects outside the city.