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City Considers Real Estate Tax Exemption for Diamond Nation Stadium Complex

By Susan Larson

Diamond Nation has requested a permanent real estate tax exemption from the City of Fredericksburg in exchange for a revenue share “in perpetuity” and the city’s investment of up to $26 million to build a baseball stadium and sports complex in Celebrate Virginia South.

The new terms came in a letter to City Council on August 21 from Diamond Nation owner Jack Cust.

“Diamond Nation is willing to return three percent of our gross revenues for each of the first ten years of operation and one and a half percent of our gross revenues into perpetuity,” Cust said.

Revenue projections range from a low of $12 million to a high of $20 million annually, Cust said.  Three percent of $12 million is $360,000, 1.5 percent is $180,000.  Three percent of $20 million is $600,000; 1.5 percent is $300,000.

City Manager Bev Cameron informed City Council during their August 12 meeting that Diamond Nation had notified the city of an $18 million budget shortfall due to very high costs of site development related to work on the “topographically challenged National Slavery Museum property” where the complex is to be built.  “Diamond Nation has indicated to the city that they are not willing to proceed with the project unless this funding shortfall can be eliminated,” Cameron said.

Since then, City Councilors Matt Kelly and Brad Ellis have been discussing options with city staff and Diamond Nation representatives. Kelly said the conversations have been mostly by phone and email.  The first time all parties will be present together is at City Council’s work session on Tuesday, Aug. 26.

“I think it’s a good proposal,” Kelly said of Cust’s letter.  “The people of Fredericksburg need to understand we’re getting more than a baseball stadium.  It’s an entertainment venue.”

Diamond Nation is a very successful business in New Jersey, Kelly said.  “This is more than just a baseball team relocating,” he said.  The stadium is being built for the Hagerstown Suns.  The Class A affiliate of the Washington Nationals had filed an application to relocate to Fredericksburg at the start of the 2015 season, but delays necessitated a lease-extension with Hagerstown.

The city is considering a special service tax district levy in Celebrate Virginia South and Central Park in the amount of about .20 cents per $100 to support the additional $18 million, Cameron said.  The levy would be in addition to the city’s general real estate tax, which is now .79 cents per $100.

Kelly said he’s received mixed feedback from businesses in the proposed special tax district.  “Some businesses think it’s a great idea and some businesses have great concerns.”

This is not, however, the only funding formula being considered, he said.  “What Diamond Nation needs from us right now is whether the city is willing to go forward,” Kelly said.  Money coming back from the team and state investments are among other possible funding sources, he said.  “We can discuss other sources of funding further down the road,” he said.

Kelly also said a special tax of .20 cents would not cause businesses to leave for surrounding counties.  “Twenty cents is still smaller than Spotsylvania’s special tax rate of about .34 cents; and Stafford has a much higher tax rate than Fredericksburg to begin with,” he said.

“What Central Park needs is more foot traffic,” he said.  “Central Park is stale because shoppers no longer have to come here; they have Cosner’s Corner and other options in Stafford and Spotsylvania.

“Retail revenue is down and this project will bring a lot of new business,” Kelly said.  He referred to Fredericksburg’s Department of Economic Development and Tourism recently released second quarter 2014 report, which indicated retail sales tax revenues in the city dropped 1.8 percent and lodging tax revenues dropped 1.3 percent over the same period last year, even though the retail vacancy rate dropped from 7.7 to 6.2 percent.

Considering a different location for the stadium complex is not being considered.  “When we first started this process we did look at every potential site, along with Diamond Nation and the Washington Nationals,” Kelly said.  “We considered all the advantages and disadvantages, and decided the Slavery Museum land was best.”

“Right now what Diamond Nation wants from us is a commitment to go down the road,” Kelly said.  “The real change from the August 2013 agreement is how we deal with the additional $18 million needed,” he said.

In August 2013 the city agreed to provide $8 million for a parking facility and to return all marginal tax revenues generated by the project, which had a preliminary value estimated to be $23 million over 20 years, Cameron said.  The total cost was then estimated at $29 million.  The additional $18 million raises the total to $47 million.

The city’s new investment would be a maximum of $26 million ($18 million + $8 million).  Kelly said the cost could be less.

Diamond Nation recently commissioned an economic impact study, prepared by economist Dr. Stephen Fuller of George Mason University.  “The report concluded that the project did generate substantial economic and revenue benefits for the city and for the core businesses in the city and the area around the stadium,” Cameron said.  Some on city council suggested an independent study should be commissioned, but there is not time if the current schedule is to be met.  Major League Baseball has an October deadline if the Suns are to move to Fredericksburg for the 2016 season.

City Council will discuss the project in its work session Tuesday, then vote during the regular session meeting whether to move forward.  Diamond Nation representatives and Stephen Fuller are expected to attend both meetings.

“I’ve been talking to my colleagues and I don’t know how the vote will go Tuesday,” Kelly said.  “They just got the proposal yesterday and they need time to review it.”

If City Council does vote to move forward, Kelly said it’s only the beginning of another lengthy public process.  “A special tax district would require additional public hearings and a lot of public discussion on how we would do it before we could vote,” he said.

If Fredericksburg City Council votes not to go forward, it will be strike three for the Hagerstown Suns.  When the city of Hagerstown refused to fund a new stadium, Suns majority owner Bruce Quinn negotiated with Winchester, Va., to move the team there beginning with the 2014 season.  Those discussions fell through because the community did not want to provide public funding.

Fredericksburg City Council’s meetings on Tuesday, Aug. 26 are open to the public.  The work session begins at 5:30 p.m. in the second-floor conference room at City Hall, 715 Princess Anne St. The regular session begins at 7:30 p.m. in Council Chambers at City Hall.

Anyone wishing to address City Council at the regular session meeting must register in advance by calling Clerk of Council Tonya Lacey at 540-372-1010, Ext 228.  Each person is allowed five minutes.

City Resources:

Fuller Report – July 2014

Diamond Nation Letter of Intent dated August 15, 2014

Diamond Nation Letter dated August 21, 2014

City Council 08/26/2014 Meeting Agenda

Related Stories:

Diamond Nation Asks City for $18 Million More Towards Stadium

Second Quarter Retail Vacancy Rate Improves, Tax Revenues Mixed

Suns Staying Longer in Hagerstown

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