I have been been going over the Nugget Project feasibility report this morning, tying to digest the details.
Overall, it really isn’t much different than what was presented to the citizens committee back in September. The one exception is that P3 Development seems to think that building a hotel is more feasible now, following another study showing that it is.
Under this report’s best case scenario, the amount of dollars coming from the city’s 1/8th cent sales tax and tax increment financing will more than cover the yearly payments to be made for the public portion of the project.
But that best case scenario depends on $9.5 million coming in from federal grants and library fundraising. That’s not an impossible amount, especially with Harry Reid returning as Senate Majority Leader, who has already fought for a $400,00 earmark to help fund the business incubator portion of the project. But with Republicans taking over the House of Representatives and making noises about cracking down on earmarks, it may not be the best time to seek extra money from Washington.
Without those extra dollars, the city would need to come up with an extra half a million dollars a year to make this fly. Roughly, the money the city is considering using for this project only makes up about 75 percent of the what they need.
One thing that doesn’t seem to be covered here is the additional operating expenses to the city. P3 Development is counting on the city’s Business Resource and Innovation Center and the business incubator to be tenants in the project. While no lease rates for this office space have been set, we can look at the Meridian Report and see that it is likely to be somewhere in the $2.10 per square foot range, which would be significantly higher than their current location. And we do not know how the business incubator will be funded, beyond Sen. Reid’s yet-to-be-passed earmark.
So, the project is feasible, if the city can convince Uncle Sam and private donors to put a few million dollars in the pot.
One thing that needs to be pointed out is that P3 has an incentive to paint a financial picture that may be rosier than reality. They stand to make a considerable amount of money on this deal. That doesn’t mean that they have fudged the numbers, and the way their Guaranteed Maximum Price works, it’s in their best interests to be pretty accurate.
But we should also pay attention to lessons of the Meridian Report, and how self-interested parties can influence the outcomes of these kinds of studies. That report, commissioned by the Nugget, claimed the state could save money moving three state agencies into the Nugget Project, but it had some very large, glaring holes, which led the state to back out of the negotiations, and the developers abandoning this part of the project.
We will try to break down more of the details in this report in the coming days. We will probably also get more answers when this report is presented to the citizens committee on Monday. Feel free to add your own analysis in the comments below.
