Why it could cost $35 million to cancel St. Petersburg's Pier project

Walking away from the $66M project would cost $35M, so the mayor says proceed.
This is a view of the downtown St. Petersburg skyline and waterfront from over Tampa Bay looking west. The area where the St. Petersburg Pier used to be can be seen at center. Mayor Rick Kriseman has heard suggestions that money earmarked for the new Pier should be used elsewhere. If the city were to halt the project, he has declared, St. Petersburg would forfeit $35 million “to not have a Pier.” SCOTT KEELER   |   Times
This is a view of the downtown St. Petersburg skyline and waterfront from over Tampa Bay looking west. The area where the St. Petersburg Pier used to be can be seen at center. Mayor Rick Kriseman has heard suggestions that money earmarked for the new Pier should be used elsewhere. If the city were to halt the project, he has declared, St. Petersburg would forfeit $35 million “to not have a Pier.”SCOTT KEELER | Times
Published December 23 2016
Updated December 25 2016

ST. PETERSBURG — Walter McCanless doesn't want the city to build the Pier and is mulling a petition drive to stop the project. He said the cost of replacing the waterfront landmark — it's currently $66 million, but the mayor wants to spend even more — is too high.

The city could spend the money on other problems, he said, like fixing its failing sewer system.

"I just feel like it's a waste of money and I think the city of St. Petersburg has evolved beyond the Pier," said McCanless, 79, who has lived in St. Petersburg since 1954.

Mayor Rick Kriseman has heard those suggestions, that money earmarked for the Pier should be used elsewhere. If the city were to halt the project, he has declared, St. Petersburg would forfeit $35 million "to not have a Pier."

The mayor said diverting Pier funds — almost all of it borrowed — to spend on other projects, for other purposes, would be expensive, imprudent and illegal.

"We bonded to build a Pier, you gotta use the money to build a Pier," the mayor said during a Dec. 6 speech. "You can't use it on sewer systems. You can't use it on anything else."

Is that, in fact, the case? Experts say yes. Paying for the Pier is no simple endeavor, and not paying for it could be even more complicated.

• • •

Nothing has been easy about St. Petersburg's attempts to replace the Pier.

The old inverted pyramid Pier was 40 years old and crumbling when it was closed in 2013. That same year its replacement, the Lens, was defeated in a citizen-led referendum. The price keeps rising for the current plan: $46 million, then $66 million after Kriseman got an additional $20 million to expand the project. Now the mayor wants to spend up to $14 million more to restore amenities lost to budget cuts.

But a Pier that could cost up to $80 million has some wondering if the city needs a Pier at all.

The mayor's $35 million cost "to not have a Pier" actually includes two separate projects that make up the newly designated Pier District. The first is the over-water attraction with a building at the end, the structure residents have always called the Pier. The second is the so-called approach, an area of land stretching from Spa Beach to the edge of downtown.

Since 1889, St. Petersburg has had some kind of Pier on its downtown waterfront. But now people like Michael Ferrentino, 65, a builder who has lived on and off in the city, said the waterfront would remain beautiful without the Pier portion of the new district.

But city officials have no estimate of what it would cost to drop the Pier itself from the project and only enhance the approach, as some advocate.

Finance director Anne Fritz said she has not been asked to crunch those numbers. St. Petersburg issued two series of bonds — $40 million for the Pier and $20 million for the approach — which assistant city attorney Mark Winn said must be used as intended.

To build the Pier Approach only, Fritz said, could require issuing new bonds because the bonds for the Pier and Pier Approach were issued together. The cost will also be higher, she said, because interest rates have risen since March, when the bonds were issued.

So how did the city calculate the $35 million cost of canceling the Pier? Fritz broke it down:

The greatest cost would be the cost of unwinding the bonds. Interest on the bonds until the call date — 2026, when the city can return the principal and stop interest payments before they mature — would cost $16.6 million.

The city has also already spent $10.7 million for architects, construction and other personnel using the bonds it issued earlier this year and TIF dollars. Satisfying the contracts that would have to be canceled would add another $4.1 million to the tab.

Shutting down the entire project, she said, could also mean the city would have to reimburse $9.5 million in TIF funds.

The city also wouldn't know if the bonds would remain tax exempt if the project is canceled. "That's a big unknown," she said. It's also possible St. Petersburg might have to pay $5 million in interest and penalties to the IRS if the agency decides the tax-exempt public service tax revenue bonds are now taxable.

There's another $1.4 million with the inclusion of the principal and interest paid by TIF dollars. Then there's the cost of $650,000 for issuing the bonds and paying premiums.

That adds up to $47.95 million. But the city could also get back some money. If the Pier project was canceled, the unused bond money would have to be placed in escrow. The city could earn an estimated $13.1 million from the escrow payment. Subtract that from the $47.95 million, and that's how the city decided it could cost up to $34.85 million not to build the Pier.

"It's not set in stone ...," Fritz said. "I'm trying to come up with a worst-case scenario."

When given the city's explanation of why it could cost so much to cancel the Pier, City Council member Karl Nurse said he still believes there could be a way to do it.

However, his greater concern is controlling the costs of the current project, which also concerns the two boards that have to bless funding: the St. Petersburg City Council and the Pinellas County Commission.

"I would be willing to have the conversation about not building the Pier," Nurse said. "But I think, at this point, the best thing we probably can do is to build it within the budget we already agreed to."

Some residents have suggested that St. Petersburg should ask the bond holders for permission to divert the bonds to another project. But that may not be possible.

"They are owned by anybody all over the world," Fritz said. "It's just not realistic."

Christian T. Lundblad, a professor of finance in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, agreed. Bond holders will be widely dispersed, he said, and it would be impractical to try to reach them to renegotiate the terms.

"It's going to be households," the professor said. "It might be banks, it might be mutual funds or insurance companies. So there is no one with whom to directly negotiate."

Lundblad reiterated that public service tax revenue bonds — the type issued by St. Petersburg for the Pier District — are "tied explicitly to the project." He added, "Repurposing it would almost certainly be in violation of the contract."

Ferrentino thinks the city should cut its losses.

"The question is, what are those bonds going to cost?" he said. "What are the cost overruns going to be? These projects never come in at what they say."

But Kriseman is adamant: the more-than-century-old tradition of the Pier will continue.

"We are going to have a Pier," he said. "We are going to build the Pier."

Times senior news researcher Caryn Baird contributed to this report. Contact Waveney Ann Moore at @[email protected] or (727) 892-2283. Follow @wmooretimes.

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