(Editor’s note: This is the first of a two-part series looking at development opportunities in Pawtucket and their implications for the city and state.)

Attendees are getting restless in a dimly lit auditorium at the University of Rhode Island. The discussion of risk and public money has seemingly put them on edge.

“If something really bad went wrong, you could pull out and say, ‘We don’t want to be associated with the Pawtucket Red Sox,’ right?” asks Sen. Ryan W. Pearson, D-Cumberland.

After a pause, Randy A. Mobley, president of the International Baseball League, responds: “If we’re talking about an absolute doomsday situation, theoretically, yes.”

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A collective exhale is audible among the crowd of approximately 100, gathered Oct. 3 as part of a series of statewide hearings held by the state Senate Finance Committee.

The topic of the hearings: Should state and local taxpayers help pay for a new Pawtucket Red Sox stadium costing $83 million?

The issue has become divisive and political, with a city’s economic fortunes and the future of an iconic professional baseball franchise potentially hanging in the balance.

PROPOSED SITE: The Apex Department Store building in Pawtucket, the proposed location of a new PawSox ballpark, can be seen in the background during a walking tour of the city’s downtown area with Mayor ­Donald R. Grebien and Commerce Director Jeanne Boyle. / PBN PHOTO/MICHAEL SALERNO

Advocates want to see the new stadium built in place of an Apex Department Store in Pawtucket, about a mile from the team’s current home field at aging McCoy Stadium. The Apex would need to close and be knocked down to make room for the stadium, situated between Interstate 95 and the Pawtucket River.

Supporters are willing to put public money toward the project in exchange for the promise of spurring economic activity, and to ensure the Triple-A affiliate of the Boston Red Sox doesn’t leave after its lease is up in 2020.

“These types of opportunities don’t come along very often,” testified supporter Thomas J. Westgate, a former president of the Rhode Island Society of Certified Public Accountants who grew up in Pawtucket.

Opponents, meanwhile, question investing millions in public money over three decades. Many are haunted by failed public-private partnerships of the past, namely the state’s $75 million public investment into the now-defunct video game company 38 Studios LLC. The company became insolvent in 2012, long before taxpayer-backed bonds were repaid.

“Everyone I talk with is still mad as hell about the 38 Studios deal,” testified Beth Richardson, a self-described libertarian and owner of a small construction company called Beth Richardson LLC in southern Rhode Island. “I don’t like paying for corporate welfare.”

Wary of public discord, most state leaders have balked at taking strong positions, with some willing to entertain avoiding a decision altogether and allowing a statewide vote.

Wendy Schiller, chairwoman of the political science department at Brown University, says the hesitance to strongly back or oppose the project is fueled partly by 38 Studios, along with next year’s looming election cycle and a lingering uncertainty about the electorate.

“People are less certain about how to read the voters, who appear to be more volatile than they were in the past, meaning [elected officials] could get some backlash either way,” Schiller said.

For legislators and the public there are two overarching questions:

How realistic is a “doomsday” situation for this deal and who is most at risk should it occur?

AERIEL VIEW: Pawtucket Red Sox owners want public money to help build a brand-new Triple-A baseball stadium in downtown Pawtucket. Skeptics of the $83 million project say, “No deal,” while advocates are bullish the investment could revitalize an economically depressed part of the city. / COURTESY PAWTUCKET RED SOX

‘HER TIME HAS COME’

The PawSox, as the team is known, currently plays home games at McCoy Stadium, built in the 1940s.

But team owners, league officials and hired architects say the stadium has deteriorated to a point where repairs would cost about the same – if not more – than building new.

“From the league’s perspective of McCoy, it’s not that the roof needs to be repaired. The ballpark has outlived its useful life,” Mobley said. “I love McCoy as much as the next person, but her time has come.”

The plan to build a new stadium was born after the current ownership group – led by chairman and co-owner Larry Lucchino – bought the franchise from the Mondor family in 2015.

The original plan was to move and build a new stadium in Providence, but the proposal failed to garner enough support. The team refocused on Pawtucket and has proposed to build a new, 9,500-capacity stadium, dubbed “The Ballpark at Slater Mill.”

The stadium, inside the Blackstone Valley Heritage corridor, would move the ballpark downtown, abutting the interstate where 170,000 vehicles pass each day. Pawtucket officials say needed infrastructure improvements around the new stadium are expected to be minimal and have been included in the city’s estimated costs.

Lucchino and Pawtucket Mayor Donald R. Grebien estimate the new stadium could bring more than 500,000 people to the downtown each year.

“A Triple-A team can be used as a catalyst for economic development, particularly in a depressed downtown area,” Lucchino said.

But the owners don’t want to pay for the stadium by themselves, nor is that typical for stadium deals throughout the country. Rhode Islanders have a choice to either participate, or likely watch the team leave the state.

The latter, Schiller said, could end up costing political leaders and the state more than money.

“Losing the PawSox is losing something that’s symbolic to Rhode Island and Pawtucket,” she said.

SOX SUPPORT: Lori Urso, left in back, executive director of Slater Mill, and Marty Richards, both of Cumberland, hold signs as supporters of a proposed deal for a new Pawtucket Red Sox stadium in the city’s downtown gather outside the entrance of a legislative hearing on the deal at the University of Rhode Island in South Kingstown. / PBN PHOTO/MICHAEL SALERNO

WHERE’S THE RISK?

On its surface, the proposed deal is relatively straightforward.

The $83 million cost – paid for mostly with bonds – would be spread between the state, the city and the team. All construction overrun costs would be paid for by the team.

State taxpayers would bond for $23 million, city taxpayers would bond for $15 million and PawSox owners would finance the rest with a mix of cash – $12 million – and debt – $33 million in bonds. With capitalized interest, debt-service reserve funds and costs of issuance, R.I. General Treasurer Seth Magaziner estimates the total bond proceeds needed for each entity could increase to $40 million (team), $26 million (state) and $17 million to $18 million (city).

Mobley says no team has offered to pay a greater proportion of a public-private stadium deal in Minor League Baseball history.

Team owners, meanwhile, have already begun discussions with other interested municipalities, most notably Worcester, Mass. Those discussions started earlier this year, as the team eyes the end of its current lease contract in 2020.

Unlike 38 Studios, the PawSox are not a high-risk startup.

But that’s not to say a deal comes with no risk.

The project would be paid for mostly with three sets of bonds issued through the quasi-government Pawtucket Redevelopment Agency. The agency would issue one for the team ($33 million), one for the state ($23 million) and one for the city ($15 million).

How each group comes up with the money to pay back those bonds, however, is where the risk is most visible.

The state – which would secure each bond issuance with its bond rating – is relatively well-protected in the legislation.

“As we look at the state obligation, there is a series of revenue to support it,” Pearson said.

The state’s debt financing would total about $1.4 million each year. This season, the team generated about $2 million for the state, meaning if nothing changed, there’d be enough to pay back the estimated $41 million (debt plus interest) over a 30-year period.

But analysts project annual revenue generated by the new ballpark – mostly from income and sales tax – to grow to at least $3.2 million, according to an economic forecast by B&D Venues, a stadium-market-analysis firm. The numbers look even better if considering indirect fiscal benefits, which would come from ancillary development that follows the stadium.

The 30-year net present value of the stadium plus projected ancillary development totals $93.3 million for the state, according to B&D.

FOLLOW THE NUMBERS: Ryan Slater, left, and Ryan Conway, senior project managers for stadium-market-analysis firm B&D Venues, present their figures to the Senate Finance Committee during a hearing on the proposed PawSox stadium deal at the University of Rhode Island. / PBN PHOTO/MICHAEL SALERNO

“We always try to paint a conservative but realistic picture,” said Ryan Conway, B&D senior project manager.

Looking past the state, the $33 million bond for the PawSox would be repaid using funds from naming rights and a 30-year contract with the team. PawSox owners estimate that payments would be covered by $500,000 each year for naming rights and a contract of $1 million in the first year that would increase 2 percent each year. The state projects costs would be slightly more, but regardless, the team agrees it is responsible for covering those costs.

The biggest risk for all sides lies in an unlikely scenario in which the PawSox were to suddenly fold, file for bankruptcy and break the contract. That brings attendance and – more generally – the future popularity of baseball into the discussion.

“Attendance is the fundamental risk of this enterprise,” said Sen. James A. Seveney, D-Portsmouth, a member of the Senate Finance Committee, addressing stadium analysts at the URI hearing.

DECLINING ATTENDANCE?

The PawSox have seen a substantial reduction in attendance in recent years.

Annual paid attendance between 2005 and 2017 fell 40.4 percent to 409,960. The trend is important because attendance is the baseline assumption for much of B&D’s projections.

But B&D projects a new stadium would buck the downward trend, and paid attendance would increase to 597,000 during the team’s inaugural year in 2020. The attendance would decline slightly before stabilizing at about 569,000 beginning in 2024.

Analysts largely blame McCoy and its declining condition for the lackluster attendance in recent years.

“The condition and location of it … was the contributing factor behind that attendance decline,” said Bryan Slater, senior project manager at B&D. “[Minor League Baseball] is a really stable business model.”

Dan Rea III, PawSox general manager, pointed to a recent report showing Minor League Baseball overall this past year attracted more than 41 million fans for the 13th consecutive season.

But the team was unable to fully share data showing how declining attendance has historically impacted revenue. After multiple requests for team-generated state revenue by year dating back to 2005, the PawSox only released years 2017 and 2016, pointing out the current ownership group bought the team in 2015.

STUDENT INTEREST: Members of the University of Rhode Island accounting class, Accounting for Government & Nonprofits, attend a Senate ­Finance Committee hearing on the proposed PawSox stadium deal at URI’s Swan Hall in South Kingstown. / PBN PHOTO/MICHAEL SALERNO

Even if attendance continues to decline, however, the chances of the franchise falling into bankruptcy, or the ownership group suddenly walking away, are minimal. It has an obligation to support the Boston Red Sox Major League franchise, which Forbes Magazine pegged as the third-most-valuable big-league baseball team in 2017.

As an added safeguard, minor league teams must maintain an equity-to-liabilities ratio of at least 55 to 45, according to Minor League Baseball rules.

Failing to do so requires submitting remedial plans to the league. And while the International Baseball League – to which the PawSox belongs – would not guarantee the financial well-being of any of its 14 franchisees, Mobley stressed that there is no precedent of such an event happening in the league’s 134 years of existence.

“With franchise values being what they are currently, chances of a member walking away … are miniscule,” he said.

Triple-A minor league baseball teams – depending on location and market – could sell for between $20 million and $50 million, according to D. Scott Poley, Minor League Baseball senior vice president of legal affairs and general counsel.

Besides the team and state is the third leg of the deal: Pawtucket.

The state’s fourth-largest city has struggled in recent decades to spur transformative economic activity, and could face the greatest challenge financing the debt incurred through this deal, especially in the immediate years.

“The biggest risk at this point is the city’s obligation because it’s largely [dependent] on ancillary ­development,” Pearson said.

ANCILLARY DEVELOPMENT

Pawtucket’s debt financing – bond payments plus interest – would cost about $900,000 per year for 30 years, or $26.5 million.

The amount may not sound like a lot for a city with a $246 million annual budget, but there are some real risks.

“The city has the most exposure in the upfront years,” Grebien acknowledged.

BONDS FOR A BALLPARK: PawSox owners have offered to pay $12 million cash toward the construction of a new $83 million Triple-A baseball stadium proposed for Pawtucket. The remaining cost would come from money raised through three issuances of bonds. PawSox owners, the state and Pawtucket would each be responsible for repaying the bonds. Here’s a breakdown of where the money could come from. The bond amounts are estimates. Including capital expenditures, debt-service reserve funds and costs of issuance, the amounts could rise to $17 million to $18 million (city), $26 million (state) and $40 million (team), according to R.I. General Treasurer Seth Magaziner. / SOURCES: THE PAWTUCKET RED SOX, CITY OF PAWTUCKET, R.I. GENERAL TREASURER’S OFFICE, R.I. SENATE FINANCE COMMITTEE

Indeed, the stadium by itself is projected to generate $261,800 for the city in 2020, an amount projected to decrease in subsequent years thanks to the natural decline in tangible property tax. The direct benefit of the stadium for the city will fall 12.9 percent to $227,900 by 2024.

Comparing those numbers to what the city will need to finance in debt payments shows a clear gap between what’s coming in and what’s going out.

So, where does the extra money come from?

“I’m not going to go out and raise taxes,” Grebien said pointedly.

The mayor acknowledges the ancillary development needs to happen for there to be a net benefit to the city. But he’s bullish it will happen, and says taking the upfront risk beats letting the team and its 32 full-time and 400 part-time jobs (the equivalent of 100 full-time jobs) leave Pawtucket. Officials couldn’t extrapolate how much the city currently benefits from the team, but the team says it was about $55,000 in fiscal 2017. That funding would also disappear if the team left.

Private development built off the economic momentum brought in by the stadium could generate a minimum of $1.5 million each year for the city, mostly from property taxes. Added to the direct benefit from the stadium, the city could end up making money. B&D analysts estimated the 30-year net present value to the city from ancillary development and the stadium could total $36.5 million, which exceeds the estimated $26.5 million the city would pay for the bond.

But getting there would require a 125,000-square-foot hotel, 200 apartment units and 50,000 square feet of retail space, according to B&D. And there’s no guarantee that type of development will happen, especially by the time the team is supposed to start playing in 2020.

Team owners, however, have committed to developing the 50,000 square feet of mixed-use development around the ballpark, promising not to seek any public subsidy to offset the costs. The owners’ real estate consultant estimated the annual property tax for the 50,000 square feet would total about $125,000 in revenue for the city. The state would receive an additional $875,000 in annual sales tax revenue. At least a portion of that development would be bars and restaurants, meaning the city would also receive a small amount extra through 1 percent food and beverage tax it shares with the state.

Getting initial development outside the stadium is key to establishing an effective tax incremental financing district, said Keenan Rice, founder and CEO of MuniCap Inc., a municipal financial adviser working with the city. And it gives Grebien a certain level of comfort, as he faces losing state aid should the city be unable to pay for its portion of the bonds.

The proposed legislation gives the state authority to withhold state aid – excluding education funding – to make up any shortfall. Pawtucket is budgeted to receive $6.2 million in state aid during fiscal 2018, according to the R.I. Division of Municipal Finance.

Grebien doesn’t anticipate needing to divert state aid to pay for the stadium, and he’s encouraged that the ownership’s initial development will get the ball rolling. The downtown, with the right attraction, he said, could result in a beehive of interest and activity.

Rice said establishing a tax-increment financing district has been a useful tool to luring ancillary development elsewhere. But Rice was vague about what it might look like specifically for Pawtucket, saying he couldn’t even begin to tell until legislation was in place.

“Developers are not going to be interested in it when there isn’t even legislation” yet, he said.

The entire deal, however, hangs on legislative approval. And while there’s tepid support, the state’s top leaders are not racing to champion the project.

STRONG STANCE: Sen. William J. Conley Jr., D-East Providence, chairman of the Senate Finance Committee, center, does not support a statewide vote on a new PawSox stadium. He thinks elected officials should decide. / PBN PHOTO/MICHAEL SALERNO

WHO WILL LEAD?

All eyes are on the Senate Finance Committee, which has spent hours in public hearings vetting the proposal. The House Finance Committee has also taken testimony on the project.

The Senate panel could make its recommendation to the General Assembly as early as Oct. 24.

Committee Chairman Sen. William J. Conley Jr., D-East Providence, wants to give the General Assembly ample time to return before year’s end for a potential vote. The strategy aligns with Lucchino’s effort to close the deal within the calendar year.

“We have been waiting for some time,” Lucchino said. “Now is the time to pass this enabling legislation.”

State leaders have largely avoided offering strong support for the proposal. Gov. Gina M. Raimondo likes the project, but said it is up to the General Assembly to decide.

Senate President Dominick J. Ruggerio said he is “generally supportive of the proposal,” but is waiting on the Senate Finance Committee. And House Speaker Nicholas A. Mattiello has said little publicly about the project.

“He has not taken a position on the proposal because he is waiting to learn all of the details that come out of the [legislative hearings],” said Larry Berman, spokesman for Mattiello.

Magaziner said at a recent public hearing he supports the deal.

But he did raise concerns about some ambiguity in the proposed legislation regarding the state’s potential exposure to debt and whether the state would be the so-called “backstop,” meaning ultimately responsible for paying back the debt should the city or team default.

Magaziner recommends the legislation clearly establish what type of bond will be used for the city and team.

The deal could benefit from a state backstop, as its credit – better than the PRA, or a private issuer – would yield greater ratings and reduced interest costs, he said.

The legislation could also include a clause giving the state the option to walk away should the contract with the PawSox not include guarantees to protect taxpayers, he said. The contract is slated to be established once legislation is approved.

However it’s done, Magaziner said, there shouldn’t be anything left to interpretation.

“The legislation needs to be clear,” he said.

Some politicians are also entertaining the idea of allowing a statewide vote.

“Count me among those people who want this on the ballot. It’s too complicated, it’s too big and we deserve a vote,” said Henry Kinch Jr., former Pawtucket City Council president, who lost a mayoral bid to Grebien in 2010.

Schiller finds that potential approach unusual.

“We don’t have a referendum on every expenditure,” Schiller said. “Given the size of the state budget – about $9 billion – it seems out of kilter to vote on a deal [this size].”

Schiller sees the PawSox as an opportunity to change the narrative on public-private partnerships in Rhode Island.

“You could recast this deal as a pretty good state investment at a minimal cost and save something that’s symbolic,” she said. “There’s a latent group of voters that might get upset if we lose the PawSox that [elected officials] could hear from once the PawSox are gone.”

Conley, who will have hosted at least seven, hours long hearings to vet the project, isn’t backing a statewide vote.

“Part of being elected to office is a willingness to gather information, do the analysis and take responsibility for making tough decisions,” he said.

Grebien largely agrees with Conley, saying he opposes any referendum. His position, he said, is not born from doubting he’d garner enough public support for keeping the PawSox, but rather a matter of showing leadership to his constituents.

The voters, he added, will get their chance.

“If they disagree with me, they are going to have their vote in the next election cycle,” he said. “It’s not about saying, ‘No,’ to people, it’s about being leaders because we’re elected to lead.”

­Eli Sherman is a PBN staff writer. Email him at Sherman@PBN.com, or follow him on Twitter @Eli_Sherman.