On the front page of the print edition of Tuesday’s Journal Gazette, Ben Lanka reported that Fort Wayne will pay nearly $75 million in interest for the Harrison Square project. Tonight, when I went to find the article online, it’s not there. Instead, is an article titled, “Harrison Square interest less than reported, city says”.
First, from the print article:
Interest adds $75 million to Harrison costs
[…] Fort Wayne will pay nearly $75 million in interest – on top of other public costs -for the Harrison Square development, but officials say that number was anticipated and is normal for large projects.
[…] According to financial information dated May 20, the city will pay $74.6 million in interest for borrowing $43.6 million over 25 years.
John Stafford, director of the Community Research Institute at Indiana University-Purdue University Fort Wayne, said people should expect there to be interest costs associated with the project. The process is similar to buying a house, he said, when the total cost of the loan is far greater than the purchase price of the home.
He added that the city also gets a break on its interest rates because they are backed with property taxes, so the costs could have been even higher. In fact, the city projected interest payments to total more than $80.6 million in July 2007. The city subsequently increased the amount of cash up front on the project to lower the amount borrowed.
There are two loans for the Harrison Square project. Because in part of it is a purely public purpose, such as the parking garage, the interest earned on the bonds is tax free, so the interest rate is lower. The interest earned on the loan for the stadium is taxable, so it costs more to borrow.
Greg Leatherman, executive director of redevelopment, said the rate for the $25.2 million tax-free loan is 4.9 percent, and the rate for the $18.3 million taxable loan is 5.6 percent.
“It costs a lot of money to borrow money,” Leatherman said, adding he was hopeful the city would be able to pay the loans early.
While borrowing money to build anything costs money, there are also costs associated with trying to save up for something then pay in cash, Stafford said. Aside from having to wait years to build up the money to pay for a project, prices increase with time. A project done today will certainly cost more money to do in the future, he said. Stafford served as a consultant for the city on Harrison Square.
[…] The city had always projected to pay interest, Leatherman said, and all the money is in place to finance debts.
To put the Harrison Square project in prospective, Leatherman compared it with the $31.99 million borrowed to expand Grand Wayne Center at 5 percent interest. If the loan isn’t paid before its scheduled final payment in 2028, Leatherman said it will cost $25.1 million in interest.Â
The higher interest rate on the taxable loan for the stadium is the major reason for the higher interest costs for Harrison Square, he said.
From the online article (which includes a nice aerial photo of the Harrison Square project):
Harrison Square interest less than reported, city says, also by Ben Lanka
The city said Tuesday it will pay far less in interest for the $130 million Harrison Square project than recently reported.
Online and in Tuesday’s print editions, The Journal Gazette reported that city officials said interest costs on two loans would add nearly $75 million to the project.
On Tuesday morning the city said the $75 million figure reflects both principal and interest costs. Greg Leatherman, executive director of redevelopment, said he misinterpreted the numbers.
This means the city will pay almost $31 million in interest to borrow $43.8 million during a 25-year period.
There are two loans for the Harrison Square project. Because part of the project is a purely public purpose, such as the parking garage, the interest earned on the bonds is tax-free, which makes the interest rate lower. The interest earned on the loan for the stadium is taxable, so it costs more to borrow.
Pat Roller, city controller, said the city will pay $22.5 million in interest on the $25.6 million tax-free loan. The city will pay $8.1 million in interest on the $18.2 million taxable loan.
Roller said she believed Leatherman simply misspoke with the numbers, adding sometimes financial terms she takes for granted aren’t always clear.
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