The World Cup made Power & Light a star, but the deal still stinks

The open-air portion of the Power & Light District erupted into a sea of pumped fists and spilled beer when Landon Donovan booted a ball past Ghana’s goalkeeper during the World Cup. The sweating mass testified to the tournament’s appeal — and to the suddenly more viable future of American soccer. But the crowd at KC Live, estimated at 12,000, said something about downtown, too.

The flags and painted faces confirmed Power & Light’s status as one of the area’s prime gathering points. For the sports fan who likes to shout beer orders and hug strangers, no other place in town offers the same atmosphere.

The game ended in a loss for the Americans, but the cheers for Donovan’s goal reverberated off skyscrapers — and even earned a place in ABC’s final-round highlights package.

Yet just a couple of weeks after the celebration, a top man at City Hall says the Power & Light District will be a drag on the city budget for a generation. City Manager Troy Schulte said recently that the entertainment district could require an annual subsidy of $10 million–$15 million for as long as the debt remains on the books.

Schulte’s budget made the news, but it barely was news. The numbers haven’t worked at Power & Light since the drinks began to flow at the heavily subsidized funporium in 2007. The city issued $295 million in bonds to pay for the project. The creditors’ payments were supposed to come from sales taxes and other monies generated at the site. But reality — pesky reality — has lagged behind expectations since day one.

City officials who support the Power & Light deal are less gloomy than Schulte. Though the margarita projections may have been a little wild, they say, a bona fide attraction now stands on ground once demoralized by seedy bars, haunted houses and crumbling parking lots. Below the surface, the sewer pipes are no longer made of wood. “We had basically Civil War plumbing under our downtown,” Councilman Ed Ford says.

Replacing 19th-century plumbing is usually a good idea. And the Scooby-Doo argument also has merits: Haunted houses (the commercial kind, not buildings with paranormal reputations) belong in the West Bottoms, away from the central business district.

But the story of the Power & Light’s taxpayer burden is even more aggravating than it appears on the surface.

When the city started planning the Power & Light District in 2004, it hired C.H. Johnson Consulting Inc., in Chicago, to whip up sales projections for the shops and restaurants that would create the entertainment zone. In the consultants’ estimation, the district was going to perform like a symphony of cash registers.

Still, city officials winced when they sold the $295 million in Power & Light District bonds in 2006. Even with the $15.6 million in tax revenue that the consultants projected for the first year, the officials knew that they could barely cover the mortgage payments. A former finance director, Deb Hinsvark, called the margin “very skinny.”

Proponents of the deal acknowledged the risk. But even then, they had no idea how loosely they were playing with the city’s credit, because C.H. Johnson’s forecasts were junk. In the first full year of operation, the tax revenues fell $11.4 million short of that $15.6 million projection.

It’s no secret that the Cordish Co., the city’s private partner in the Power & Light District, has had trouble finding and keeping tenants. The spiraling economy has only added to the challenge.

But it’s the consultants at C.H. Johnson — and the city officials who believed them — who now look unfit to mop the floors at Johnny’s Tavern. Now 85 percent leased, the district is hardly a ghost town. The thousands of people who went to the district to watch soccer during the World Cup attest to its brand recognition. Power & Light isn’t everyone’s favorite destination for every occasion. But no one can call the concept a failure.

[page]

A man who worked on the revenue projections, Rob Hunden, puts the blame on Cordish. “The tenants who have opened there have performed as projected,” he told The Kansas City Star last week.

Not exactly. In fact, not at all. C.H. Johnson estimated that the city would collect $14.1 million in sales taxes from Power & Light in 2008. Actual number: $2.2 million.

A higher-than-anticipated vacancy rate doesn’t explain a gap of that size. The wild-eyed forecasts were designed to make people feel good about the investment. The consultants sold it, and the city bought it. Now we’re picking up the tab.

Nick Benjamin, the Cordish official who runs the Power & Light District, says too much is being made of the predictions. “From our perspective, we would like the focus to be on the present,” he says. Benjamin says Cordish is confident that revenues from the project will continue to grow, and the gap between the tax collections and the debt service will shrink.

Of course, the $10 million–$15 million annual subsidy is only part of the bill that taxpayers are left with. Ever puzzle over the heft of a bar tab after a night on the town in Kansas City, Missouri? You think it’s some last-call shot you forgot you ordered. More likely, it’s the city’s punch-to-the-pocketbook taxes.

Eating and drinking in some parts of Kansas City carry a surcharge of more than 10 percent. In addition to the standard city, county and state sales taxes, Kansas City charges a 2 percent tax in restaurants and bars. And in some parts of town, an additional 1 percent tax benefits a “transportation development district,” a sort of admission fee to certain destinations — the Country Club Plaza and, yes, the Power & Light District. Add it all up, and a 10.725-percent sales tax lurks at the bottom of every bar and restaurant bill issued within the confines of Power & Light.

Under the development agreement, most of the sales tax goes to pay off the debt. The creditors also receive the taxes on the earnings of people who work inside the district and a portion of the property taxes. This is the essence of tax-increment financing, the city’s go-to economic-development tool.

But even with all the help you and your drinking buddies are providing, the Power & Light bondholders are left short. So the city’s general fund has to step in to make up the difference. The $10 million–$15 million payouts that Schulte anticipates having to make until 2032 are, in essence, a subsidy on top of a subsidy.

Kay Barnes, former mayor and one of the architects of the Power & Light plan, accuses Schulte of raining on the district’s beer-spewing parade. The town boss from 1999 to 2007, Barnes liked to get things done, and she didn’t like it when people stood in her way. When she tried to put together a downtown entertainment district in her first term, her most vocal skeptic on the City Council was Jim Rowland. So she removed him from the powerful Planning and Zoning Committee.

It paid off. Barnes got the deal done with Cordish in her second term. The city gave up a lot, with Cordish receiving $54 million in direct subsidies on top of the money that the city spent building new roads and parking garages.

[page]

But Barnes scoffed at the suggestion that the city sacrificed too much to make Power & Light happen. She suggested last week that the projections might not look so wild in five or 10 years. But it sounded more like a wish than a guarantee.

Other politicians are facing up to their mistakes. Councilwoman Deb Hermann, who’s running for mayor, has admitted multiple times that she and others on the council looked at the Cordish deal through rose-colored glasses.

Of course, the south end of the downtown loop wasn’t going to fix itself. Even the people who grouch about Power & Light’s corporate feel have to admit that it cleared a slum and anchored downtown with an entertainment destination.

But if residents knew what that World Cup party was really costing them, downtown might have been a little quieter on the day Donovan found the back of the net.