A lack of oversight - City says that stadium deal has taught it a lesson

With work on a downtown baseball stadium restarted, city leaders are thinking about how to avoid getting entangled in future projects that could end up costing a lot more than planned.

It's about time, some critics of the now $40.7 million stadium are saying.

"The financial health of this city was put at risk over a deal that was based on whether someone was happily married or not," said state Rep. Dale Folwell, R-Forsyth. "I mean, that's not how transactions are supposed to be put together."

City officials say that in hindsight, they are realizing some steps they could have taken to avoid problems that they did not foresee in November 2007. That's when the city entered into an agreement to provide $12 million toward the construction of a 5,500-seat baseball stadium downtown, at a cost that was then estimated at $22.6 million.

City leaders say they didn't know that Billy Prim, the co-owner of the Winston-Salem Dash and the developer leading the project, would lose his business partner, Andrew "Flip" Filipowski, who was going through an acrimonious divorce. Filipowski was married to the sister of Prim's wife.

They said they also could not have predicted the meltdown of the banking sector in late 2008. In the wake of several collapses of banks and other financial institutions, Prim was left with no way to refinance his side of the stadium deal, which led to his asking the city for more financial help.

"From an economical, financial side of any project going forward, there were definitely lessons learned from this project that we wouldn't want to repeat," said Denise Bell, the city's finance director. "There has never been city oversight in projects like this.''

When the city gave incentives to bring in a Dell computer factory, for instance, it didn't pry into Dell's books.

"If we do any more projects like this where there is any upfront money, we will require extensive due diligence of the financial capacity of the developer and a market analysis," City Manager Lee Garrity said. "We would put in reporting on the status of construction and significant clawbacks (repayments) if it is not done on time."

One of the biggest issues that upset critics is how the cost of the stadium rose from $22.6 million to the current $40.7 million. Including the city's cost of buying land for the stadium, the total stadium bill is now $48.7 million.

"When we began our initial talks with the city, we had not designed the stadium," Prim said last week. "We did not have a design and any bids. We took a ‘plug' number by asking Samet (Corp.), who built the stadium in Greensboro, what was the cost of building Greensboro. Of course, the Greensboro stadium was built in 2003-04. Then we hired our architects to design our stadium."

Architectural estimates, which came in after city officials had already agreed to provide the initial $12 million, put the cost in the range of $31 million to $32 million, Prim said. That number was never released publicly.

Prim said that the cost rose because, compared to Greensboro, the Winston-Salem ballpark had a different design and a site that required a lot of work. The designers also had to put in stormwater controls and handle conditions imposed by city planners, he said.

Those conditions included designing lighting and noise controls to minimize the disruption to neighbors, as well as dealing with other concerns raised by people in the community and by the planning staff.

The lack of awareness of the cost increase is still a source of confusion.

"As we knew, we were letting other people know," Prim said. "Sometime in the fall or winter of 2008 was when we had the visibility of what the cost of the total stadium would be." By late 2008, the stadium cost had risen to $38 million, which included $8 million in improvements, including a wider concourse to allow for more shops and concessions, a "kid's zone" and more. Prim revealed the $38 million estimate for the stadium's improvements at a news conference last December.

All that city staffers knew, Garrity said, was that the cost had suddenly jumped from $22.6 million to about $38 million, and it wasn't until the spring of 2009 that he learned that the previous price of the stadium had been about $30 million.

Mayor Allen Joines, a Democrat, said that while construction was under way, Prim told him that the cost had risen, but Prim didn't go into specific numbers. At that point, Joines said, he felt no need to inform city staffers of the higher stadium cost because everyone believed that Prim would be paying for the improvements.

"If I had been told (earlier), it wouldn't have made any difference because our contract was limited to $12 million, and any extra conditions were his (Prim's)," Garrity said. "We would have said, ‘Good' because it would have added to the tax value. It was good news that he was going to build a bigger stadium. It was bad news that he couldn't pay for it. Even if he had had a $23 million stadium, he couldn't have paid for it."

As it turned out, Prim approached the city council to seek $15.7 million more, and the council in June unanimously agreed to the bailout of the stadium, although it took three months until all of the parties involved -- the city, Prim and private investors recruited by Prim, banks -- could sign off on all the aspects. By this time, the stadium construction cost had risen again, to the current $40.7 million.

The council created a citizens committee to review the handling of the stadium and spending of money.

Now, Joines said, he wishes that the city had from the beginning created the citizens committee that now is in place to oversee the project. And he thinks that the city should have learned more specifics about the cost increases as they were recognized by Prim.

Council Member Robert Clark, a Republican, said that the cost of the stadium and its features was of no concern to the city as long as construction was humming along.

"From the original document, the city was lending $12 million, and Mr. Prim had to cover the difference," Clark said. "If he wanted to build the Taj Mahal, he could, and he would have to pay the difference. I didn't have anything to be concerned about. The gentlemen (Prim and Filipowski) doing it were highly capitalized. We had a copy of the commitment letter from the bank."

In late 2008, Clark found out during a rare Saturday meeting that Prim didn't have enough money to finish the stadium and needed around $16 million to do it.

"It was quite eye-opening," Clark said. "In hindsight, if we would have required the bank to put in their money first … we would have come in at the very end. Because the city put their money in first, we were on the hook. Hindsight is awfully easy."

Ron Bird, a member of the citizens review committee, said that clear oversight has been lacking throughout the project.

"Even at $22 million, the city had $12 million in," he said last week. "And no one has ever really been checking from the city."

Folwell said that despite the latest contract language designed to protect the city, he's worried about costs rising again.

"The city has no ability to say ‘no' ever again to anything,'' he said. "And I suspect that the people who are running this project have always been two steps ahead of the taxpayers who were supposed to be protected by the elected officials and staff, and I suspect they're still two steps ahead of us in ways we don't even realize yet."

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