The magic number for the Isle of Capri is $207 million. That's the gaming company's estimate of the new money that the Quad Cities would receive over 10 years from its proposed expansion of the Rhythm City facility, which would include construction of a 10-story riverfront hotel and a 500-space parking ramp.
The other magical phrase is "self-funding project," a series of words meant to convey that the City of Davenport, other taxing bodies, and the Riverboat Development Authority won't be losing money because of the $43-million project.
But when you look closely at the complicated financing and the promised benefits, those claims contain a lot of fine print.
Benefits
If one itemizes the $207-million benefit to the community in the Isle of Capri proposal, it looks like this:
• $9.6 million to the City of Davenport.
• $7.1 million to the Riverboat Development Authority (RDA).
• $2 million to Scott County.
• $5.1 million to Davenport Community School District.
• $36 million to the State of Iowa.
• $85 million in "construction secondary/spin-off."
• $62 million in "hotel operation secondary/spin-off."
Keep in mind that this is the increment - the amount above what these bodies currently get from the existing operation - from 10 years of operation. So that $207 million is a little less than $21 million a year.
A crucial thing to notice about the benefits is that more than 70 percent of them ($147 million) comes from the multiplier effect - that's what "secondary/spin-off" means - and will be difficult to quantify and nearly impossible to attribute directly to the construction and operation of the expanded Rhythm City hotel/casino.
Also note that another 17 percent goes to the State of Iowa, and that portion can't be expected to benefit the Quad Cities in any direct way.
That leaves $23.8 million - a little more than $2 million a year - of direct benefit to the Quad Cities.
But that number, too, is deceptive, because $5 million of the $7 million in increment that will go to the Riverboat Development Authority will be going to pay for non-hotel project costs. (See section on financing below.) That leaves $18.8 million over 10 years - or $1.88 million in direct annual impact on the Quad Cities, spread over three taxing bodies and the Riverboat Development Authority.
Essentially, if the City of Davenport agrees to the proposal, that would be the de facto price of the riverfront property.
Financing
Of the $43.1 million in project costs for moving the casino and building the hotel a block to the east of its current location, Isle of Capri would contribute $37 million up-front.
The city will be using its bonding authority to finance construction of the $6.1-million parking ramp. Those bonds will be re-paid using money from long-term leases with the Isle of Capri. In other words, the city is using its bonding authority to save Isle of Capri financing costs - between 2 and 2.5 percentage points in interest, according to the Isle of Capri.
Although this element of the project would cost the city a portion of its bonding capacity, it does not cost the city money in the short or long run; if the parking ramp were privately financed and owned by the Isle of Capri, the city would get no lease benefit from the facility, although it might generate some property taxes.
Under its proposal, however, the Isle of Capri would reap financial benefits from both the city and the Riverboat Development Authority.
The RDA has promised the project $5 million, none of which can be used for construction of the hotel. Essentially, the casino will be recoup $5 million of its up-front costs over time through the RDA contribution.
Furthermore, Isle of Capri is asking for $7 million from the City of Davenport through tax rebates over time. This, the Isle argues, means that the city is paying the costs of re-locating and consolidating casino operations because "the city asked us to move." (As Todd McGreevy points out in this issue, however, that assertion contradicts a memo last year from Davenport City Administrator Craig Malin.)
Both of these contributions qualify as "self-funding," the company claims, because without the hotel there would be neither the expenses nor the additional gaming revenue to cover them. These are costs the casino is paying up-front, with the promise that new gambling revenues will be used by the RDA and city to re-pay them.
But this logic ignores a key point. If the project were entirely privately financed, that's $5 million the RDA would be able to spend for community programs and projects, and $7 million the city would have for its coffers. While city government and the RDA won't have any less money than they presently get from the casino operation, they could have more if the Isle of Capri uses conventional financing for the entire project.
So while the hotel and attendant projects are self-financed in a manner of speaking, there is a cost for both the City of Davenport and the RDA.
One question that citizens and the city council have to answer is whether that cost is appropriate given the benefits the proposal promises. Another question is why the Isle of Capri can't finance the project solely through private channels, perhaps incurring greater borrowing costs but not requiring any contributions or financing assistance from taxing bodies.
The other magical phrase is "self-funding project," a series of words meant to convey that the City of Davenport, other taxing bodies, and the Riverboat Development Authority won't be losing money because of the $43-million project.
But when you look closely at the complicated financing and the promised benefits, those claims contain a lot of fine print.
Benefits
If one itemizes the $207-million benefit to the community in the Isle of Capri proposal, it looks like this:
• $9.6 million to the City of Davenport.
• $7.1 million to the Riverboat Development Authority (RDA).
• $2 million to Scott County.
• $5.1 million to Davenport Community School District.
• $36 million to the State of Iowa.
• $85 million in "construction secondary/spin-off."
• $62 million in "hotel operation secondary/spin-off."
Keep in mind that this is the increment - the amount above what these bodies currently get from the existing operation - from 10 years of operation. So that $207 million is a little less than $21 million a year.
A crucial thing to notice about the benefits is that more than 70 percent of them ($147 million) comes from the multiplier effect - that's what "secondary/spin-off" means - and will be difficult to quantify and nearly impossible to attribute directly to the construction and operation of the expanded Rhythm City hotel/casino.
Also note that another 17 percent goes to the State of Iowa, and that portion can't be expected to benefit the Quad Cities in any direct way.
That leaves $23.8 million - a little more than $2 million a year - of direct benefit to the Quad Cities.
But that number, too, is deceptive, because $5 million of the $7 million in increment that will go to the Riverboat Development Authority will be going to pay for non-hotel project costs. (See section on financing below.) That leaves $18.8 million over 10 years - or $1.88 million in direct annual impact on the Quad Cities, spread over three taxing bodies and the Riverboat Development Authority.
Essentially, if the City of Davenport agrees to the proposal, that would be the de facto price of the riverfront property.
Financing
Of the $43.1 million in project costs for moving the casino and building the hotel a block to the east of its current location, Isle of Capri would contribute $37 million up-front.
The city will be using its bonding authority to finance construction of the $6.1-million parking ramp. Those bonds will be re-paid using money from long-term leases with the Isle of Capri. In other words, the city is using its bonding authority to save Isle of Capri financing costs - between 2 and 2.5 percentage points in interest, according to the Isle of Capri.
Although this element of the project would cost the city a portion of its bonding capacity, it does not cost the city money in the short or long run; if the parking ramp were privately financed and owned by the Isle of Capri, the city would get no lease benefit from the facility, although it might generate some property taxes.
Under its proposal, however, the Isle of Capri would reap financial benefits from both the city and the Riverboat Development Authority.
The RDA has promised the project $5 million, none of which can be used for construction of the hotel. Essentially, the casino will be recoup $5 million of its up-front costs over time through the RDA contribution.
Furthermore, Isle of Capri is asking for $7 million from the City of Davenport through tax rebates over time. This, the Isle argues, means that the city is paying the costs of re-locating and consolidating casino operations because "the city asked us to move." (As Todd McGreevy points out in this issue, however, that assertion contradicts a memo last year from Davenport City Administrator Craig Malin.)
Both of these contributions qualify as "self-funding," the company claims, because without the hotel there would be neither the expenses nor the additional gaming revenue to cover them. These are costs the casino is paying up-front, with the promise that new gambling revenues will be used by the RDA and city to re-pay them.
But this logic ignores a key point. If the project were entirely privately financed, that's $5 million the RDA would be able to spend for community programs and projects, and $7 million the city would have for its coffers. While city government and the RDA won't have any less money than they presently get from the casino operation, they could have more if the Isle of Capri uses conventional financing for the entire project.
So while the hotel and attendant projects are self-financed in a manner of speaking, there is a cost for both the City of Davenport and the RDA.
One question that citizens and the city council have to answer is whether that cost is appropriate given the benefits the proposal promises. Another question is why the Isle of Capri can't finance the project solely through private channels, perhaps incurring greater borrowing costs but not requiring any contributions or financing assistance from taxing bodies.
