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Elizabeth Pagano is the editor of the Austin Monitor.
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Council says city will not provide money for Formula One race event
Wednesday, June 8, 2011 by Elizabeth Pagano
Council Members had tough questions for Formula One representatives Tuesday after hearing details of a financing fund that could very well determine the existence of the track.
They will vote on the plan later this month.
Though all the details of the contract have yet to be worked out, Mayor Lee Leffingwell was crystal clear on one point.
“Not only are we not going to commit to putting any money in on the first year, we are going to commit to not putting any money in on the second, third, fourth, and so on,” said Leffingwell “The city will never put any money into this project.”
Though the Mayor was adamant about not using public funds to finance the track, the City Council is put in the position of signing on as an “endorsing municipality,” in order for the track to access $25 million from the state’s Major Event Trust Fund.
“You all did just make the bet that it’s going to get approved – so what happens if it doesn’t get approved? You have over a thousand people working there. Does it just shut down?” asked Council Member Laura Morrison.
Armbrust & Brown attorney Richard Suttle, who represents Formula One, called that a “distinct possibility.”
“It’s important to note that to have the Formula One event, it’s critical to have the Major Event Trust Fund support. Without the trust fund support, there is no Formula One race, and without the Formula One race, there is no Circuit of the Americas.” said Suttle “My clients are betting on the thought that you’re going to determine that this is such a good deal for our community, that they went ahead and got started on it.”
The Major Events Trust Fund is used to finance large events in Texas, like the Super Bowl. The state contributes 6.25 times the estimated amount of incremental local taxes generated by the event. Those include sales taxes, hotel occupancy taxes, motor vehicle rental taxes and alcohol taxes.
In this case, the state has pledged $25 million and the local funds will come from a non-profit corporation known as a Local Organizing Committee (LOC) that will act in the interest of the city. The LOC will contribute the entirety of the first year’s $4 million in local contributions.
There will be no public money seeding the project in the first year.
The local contribution for years 2 through 10 will come from local tax increment revenue generated solely by Formula One events.
“That money is ours, the city’s, generally speaking. But we wouldn’t get that $4 million dollars extra but for the event,” explained Assistant City Attorney Leela Fireside.
Any taxes generated by Formula One over that $4 million will go into the General Fund, to be spent as the city sees fit. The city would be reimbursed for all eligible expenses on a yearly basis, and would get all of the money back after 10 years.
“Our risk is really none, the state’s risk is really huge,” Assistant City Manager Sue Edwards told In Fact Daily.
Following the first race, a new analysis will be performed to determine the incremental taxes derived from the event.
“At no point will the city go negative on this, because every year it has to prove itself up. And if it’s a bust and there is no incremental sales tax increase, then there is no contribution and there is no matching, or at least it is a reduced amount.” said Suttle. “It’s always performance based.”
The state will pay $25 million to Formula One Management, Ltd. for a race-sanction fee. Robert Wood, director of local government assistance and economic development for the comptroller’s office, explained the trust fund, from the state’s perspective, “is essentially set up as a break-even statute at the state level and the real benefit is the local community.”
The local committee has hired an economist to perform an economic analysis to quantify the local community impact more precisely. The result of that analysis is anticipated within the week. In addition to this, Council Member Sheryl Cole said she wants to see independent evaluations of the prospects for the race from “outside and inside” auditors.
“It’s one thing to get a report. It’s another thing to get a report from the people that are actually seeking your participation,” said Cole.
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