If a city loan to the ShoWare Center is really a subsidy, then it should be called a subsidy.
That’s the opinion of the Public Facilities District (PFD) board chairman Mike Miller, who helps oversees operations at the city-owned arena, in connection with a finding by the state Auditor’s Office that the board’s financial statement misrepresented the $18 million debt because the district cannot generate enough money to repay the city for the loan.
“The point I am trying to make is it’s not an asset in my opinion,” Miller said at an exit conference on Jan. 9 with the state Auditor’s Office. “The wording should have been changed sometime ago. If I came in as a loan underwriter and looked at the financials and saw a large loan payable and loan receivable from an entity, I would question that as a loan receivable.”
The City Council voted in December to table a decision until March about changing the city’s agreement with the PFD to call the debt a loan or a subsidy. Several council members have said they think the arena could still make money and then the PFD could begin to pay back the loan.
City officials set up the repayment counting on the ShoWare Center to make money but the $84.5 million arena has lost more than $3 million since it opened in 2009.
“The district received payments from the city for its debt service and the district recorded the payments as intergovernmental revenues,” said Haji Adams, audit supervisor. “However, the agreement between the PFD and city say payments are loans. So generally accepted accounting principles require that loans be reported as a liability on the statement and they weren’t so we had a finding in regards to that.”
Adams said the misrepresentation caused intergovernmental revenues to be overstated by about $3.1 million and liabilities by the same amount in 2013 and notes payable understated from 2009-2012 by about $12.4 million.
“Our recommendation is that if repayment is not sought, both parties amend the agreement to reflect that,” Adams said.
Miller wants to see the agreement amended to call the city payments a subsidy.
“I think we have the support of the board to make a change in this and I would hope the city council agrees and I’ll leave it at that,” Miller said near the end of the meeting with the state auditors.
Earlier in the meeting, Miller asked the auditors if in the next financial report they would like to see the district report the loan as a subsidy.
“That’s a management decision,” said Sadie Armijo, deputy director of the state Auditor’s Office. “Our expectations are that the financial statements would reflect what it is. If you have not entered into an agreement (with the city), we would expect the financial statements to look like they do currently. Changes were made to the financial statements to make sure it was represented properly. It’s management’s decision if an agreement between the city and the PFD were to change, you would be reporting it.”
Miller then pressed Armijo further.
“You are not making a recommendation one way or another?” Miller asked.
Armijo replied:
“We don’t make management decisions for local governments,” she said.
The PFD brings in about $700,000 per year in revenue through a state sales tax rebate program. City officials created the PFD in 2007 and issued $63.3 million debt for construction of the arena. The city and PFD signed a loan agreement that stated any city monies contributed toward PFD debt service is a loan to be repaid with interest.
But the city has paid about $18 million of the $22 million owed in debt service on the ShoWare Center since 2009, according to City Financial Director Aaron BeMiller.
After the audit, city staff recommended the council change the language in the agreement from a loan to a subsidy. BeMiller told the council it could get in trouble with credit rating agencies if no change is made and the city continues to book a receivable for $18 million that it will never be repaid for because it is not fairly representing the city’s finances.
“We tabled it as a council,” said Councilwoman Brenda Fincher after she attended the meeting with the auditors. “We’re still in the same place.”
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