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Board rejects Kalahari fee deal page 3
EDA split over Kalahari fees; compromise proposal dies

Date published: 5/15/2010


O'Neill said the EDA shouldn't lose sight of the bigger picture: While its deliberations focus on fees that the EDA uses to help smaller projects along, Kalahari's projected tax benefit to the city--even after the 47.5 percent rebate the City Council granted it on its taxes for 20 years--and the jobs it would bring are a bigger deal.

"It's all about economic development, and we need the jobs," O'Neill said.

Pullen said he believed Kalahari could afford to pay the full fees on the bond, and that the City Council could keep the fees in the city by refusing to give its approval to issuance through another EDA.

"We're not killing their deal if we don't agree to the terms. They can afford this," he said.

It remains to be seen whether Kalahari and the Silver Cos. will be able to hammer out written agreements with any outside EDA on a bond fee lower than what Fredericksburg's EDA wants. But bond fees will be back up for discussion at the Fredericksburg EDA's May 24 meeting. There, the EDA will have to decide whether to accept Kalahari's compromise offer on a $25 million tax-exempt bond made available through the federal stimulus act.

On that bond, Kalahari has agreed to pay the full fee for 10 years. That could be the entire life of the bond if Kalahari pays it off after 10 years, but the current plan is to pay off the balance after 25 years, so the EDA would be missing out on the fees paid on a reduced principal for the last 15 years of the life of the bond.

Emily Battle: 540/374-5413
Email: ebattle@freelancestar.com

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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.