Our view: Time to stimulate base area

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Editorial Board, February 2009 through May 2009

  • Suzanne Schlicht, general manager
  • Brent Boyer, editor
  • Mike Lawrence, city editor
  • Tom Ross, reporter
  • Paul Hughes, community representative
  • Gail Smith, community representative

Contact the editorial board at (970) 871-4221 or editor@steamboatpilot.com. Would you like to be a member of the board? Fill out a letter of interest now.

— Within the past week, we've seen two dramatic signs that local resort and government leaders have the resolution required to continue improvements at the base of Steamboat Ski Area in the face of a deep recession.

We support and take great encouragement from the exhibited level of cooperation and determination.

On Monday, officials with Steamboat Ski and Resort Corp. and Resort Ventures West - developers of Wildhorse Meadows - confirmed they are very close to reaching a deal to partner on a $7 million deal to build a public gondola. The gondola would move skiers and mass transit users from a platform at Wildhorse Meadows, near Trailhead Lodge and Ski Corp.'s Meadows Parking Lot, to Gondola Square. Also on Monday, city Planning and Community Development Director Tom Leeson confirmed that City Manager Jon Roberts approved expediting the permit process to have the eight-passenger gondola operational in the coming ski season - perhaps soon after the new year.

Then, on Tuesday afternoon, all six City Council members at a hearing about the base area, wearing Urban Renewal Authority hats, expressed a strong willingness to commit city reserves to help secure a bond issue of at least $11.2 million. The bond would allow work on a pedestrian promenade showing off the resurrected Burgess Creek to continue at the ski base. The revenue stream that would repay the bonds would be covered by an increase in the URA property tax increment - not to be confused with a tax increase - at the ski base.

But it cannot be done without the city backstopping those revenues with its reserves.

All six council members agreed that allowing the work to go dormant would be a mistake that could jeopardize the goal of stimulating private investment in our aging ski base.

They went a step further. Several council members expressed concern upon hearing $11.2 million would not be enough to fund a snowmelt system for the promenade. With that in mind, they asked URAAC to return May 5 with a bond scenario that would raise something less than an additional $5 million and include more work. Although it comes with a sizable carbon footprint, we agree a snowmelt system, perhaps with the ability to convert to alternative energy sources in the future, carefully should be considered up front.

In a time of economic challenge, the community cannot afford to fail to make prudent investments in one of its greatest economic assets.

Further, the fact that city government and resort leaders refuse to pull their heads into their shells and are working closely together, sends a strong message. It communicates to the financial markets, airlines contracted to fly here and to our guests and investors that we are determined to carry on.

Bill Jensen, CEO of ski area parent company Intrawest, said in a published report last week that even though his company is in survival mode, it is planning to fund a share of the new gondola at Steamboat - reflecting the importance of the investment.

We don't pretend to have the financial sophistication to evaluate the impending plans to issue bonds in detail. However, we take encouragement from the experts consulted by URAAC, the comfort level of interim City Finance Director Bob Litzau - who consistently approaches such matters with a large dose of fiscal conservatism - and the fact the financial models built to support several bonding scenarios include built-in assumptions that property values here will decline during the life of the bonds.

The base area improvements going forward in the next three years represent a 50 year investment in the economic health of the community. This is a local economic stimulus package we can get behind.

Comments

ybul 5 years, 8 months ago

A couple of concerns on the promenade and URA?

First is that if I am not mistaken the current bonds are of the variable interest rate nature. My question is what happens when interest rates begin to head north, for multiple reasons?

If the old bonds face an increase in rates as they did during the credit crisis which caused problems for the URA last year, if I am not mistaken. What happens when we throw on an additional 16 million in debt, with a variable interest rate and those rates go up, while sales and property tax revenues stay flat and or decline? How much city government will we be left with, as deep cuts will need to be made to make debt service payments, when the URA fails to make ends meet?

Second, is the marginal benefit of a snow melt system on the promenade. If the system is going to cost 5 million to install would it not be better to buy some of the bonds to be issued to build the promenade, earn $20,000 a year, coupled with the additional energy requirements for the system. With that you could hire an independent contractor to keep it clean, creating a job for posterity as opposed to a system that is too costly in the future to operate if energy prices go back to mid 2008 levels or higher in the future.

Investment in the community should be made, however, the risks that those investments may pose should not be taken lightly. Without having fixed interest rate loans any city guarantees of the URA should not be undertaken under no conditions. That could put police and fire service at jeopardy!

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steamboatsprings 5 years, 7 months ago

The scenarios presented by URAAC do include converting the variable bonds to fixed rates for the next 5 years which was a big part of what it took to make everyone feel comfortable this was a good move. Seeing the actual county property tax valuations before the decision on May 5th will also be a big help.

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Scott Wedel 5 years, 7 months ago

"seeing the property tax valuations ... will be a big help" is completely wrong and misleading. It is the calculation of property values as of June 2008 based upon prior sales. So it will be a snapshot of the market BEFORE THE BUST!!!

I think the advocates for the bond want to make that number a key factor because they know it won't show a severe decline in values. Thus, they can claim that there will be ample revenue for the bonds.

Unfortunately, it is intellectually a lie. It will only show that for the first year that there will be sufficient revenues. Next year the valuations will show the change in the market and will be way down.

And I expect a whole lot of valuation appeals because the appeals can use more recent data and you can present data other than sales prior to June 2008 such as comparable properties on the market that have not sold.

If the promenade is so important to build soon and the risk of the City having to pay is so minimal then why doesn't one of those billion dollar corporations submit a letter of credit promising to pay if the URA cannot?

Why in the world is the City even considering backing bonds from a "redevelopment" district where the land is worth millions of dollars per acre when the purpose of the district was so the wealthy owners of these expensive properties created the district so they could be sure they all contributed a fair amount to the shared infrastructure that would make their expensive property worth even more?

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ybul 5 years, 7 months ago

I suppose it is a start of being a good move. However, given how long the economic problem is taking to unfold. Five years might only allow the current council to not need to worry about the potential problem in the future.

Personally an investment in the community would be one that has a real economic return, not a perceived economic return. Real in that their is some mechanism to create wealth. Investing in something that is going to create jobs.

Looking at other destination resorts, like say Napa Valley, should be considered when thinking of an investment. What are the intrinsic assets of the valley, how can they be fostered to build a stronger national brand/product that can be purchased elsewhere. Creating jobs even during the mud season while building an advertising program, through a nationally and internationally merchandisable products, which leaves a sense of the area in peoples minds even while they are not in the valley. ( Building a nationally recognized beef brand, like Omaha Steaks or boars head meats, to promote the area, create year round jobs while providing a subtle marketing for the region).

The risk of insuring 11 million dollars in bonds to pay for a sidewalk, has less value in building community and the desire to come to the resort, than other investments in the community would. In addition to the fact that it will need replaced in 20 years. As far as investing in the community something that will create wealth for many years to come and enhance the brand of the Yampa Valley, beyond just a ski town, is a much better choice.

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ybul 5 years, 7 months ago

Back to the interest rates for those who care... The treasury announced that it was going to buy back t-bills in an effort to keep a lid on interest rates. This had kept a lid on rates, this is starting to unravel with the massive amounts of debt coming on to the market by the federal government.

While locking in rates for five years may give the illusion that the URA's ability to repay its debt is sound, it may have serious problems in the long term. As bloomberg reports rates for 10 year notes are on the rise (http://www.bloomberg.com/apps/news?pid=20601103&sid=aaSYyxBbqcbY&refer=us)

Rising rates will make refinancing in five years problematic, unless the plan is to have all debt paid off at that time. However, given last years inability to service debt that seems unlikely as more debt is being taken on with the same or lower revenue streams.

Next is that if rates rise to early nineties levels then condo/home prices will fall. As most are bought based upon payments. This will limit the increases in revenue that the URA has to service its debt and the city could be forced to make up the difference.

From a fiduciary standpoint, taking the worst case scenario and basing your decision on that and hoping for the best, is what should happen. Long term rates are going to rise as inflation is a real problem, as its creator is increased monetary and debt supplies, which will require higher rates to stabilize the economy.

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