DCU Special District Finance Zone

I am getting kind of confused by the financing on this but the two recent articles in the Telegram that I have read the past week but here is what I come up with. This is not a a TIF or DIF, but something completely new created during Governor Romney's last days in office, the DCU Special District Finance Zone. It is a fixed geographic area consisting of four parcels: the Hilton Garden Inn, the Residence Inn by Marriott on Plantation Street, the DCU Center arena and convention center and the Major Taylor Boulevard parking garage, including its retail space and operations.

The bill authorizes the City of Worcester to borrow up to $30 million to finance the construction of the “sky bridge” and upgrades to the DCU Center. The initial loan order recommended by the manager initially authorizes $5.125 million in bonds to be issued for the $7 million sky bridge project. The balance ($1.875 million) of the financing for that project is already part of the city’s Five-Year Capital Improvement Plan. How does the City of Worcester pay this back?

The special district designation allows “net new” state tax revenues, such as meals and sales taxes, collected at those establishments to be redirected to the city. The state will continue receiving existing tax revenues from establishments in the special district financing zone, but it will dedicate the "net new" revenues from that zone to the city so it can repay the loans that are taken out for the sky bridge project and improvements to the DCU Center.


Two things can happen.

1. First the DCU Special District Finance Zone will do additional business and the "net new" state tax revenues collected will be redirected to the city, pay the notes and cost the city tax-payers nothing.
   
2. Second the DCU Special District Finance Zone does no do any additional business and does not create any "net new" state tax revenues. In the later case the note would have to be paid back so I would think it would come out of the City's general fund.
   

All I am saying is that there is some risk here. In fact Mr. O’Brien emphasized that the loan authorization limits any further capital improvements to proceed beyond the first allotment of $5.125 million. He said further work would be dependent upon the revenue-generating success of the DCU Special District Finance Zone. The loan authorization requires the city manager, with the assistance of the city treasurer, to report to the City Council on revenues generated by the special district, to demonstrate that they can financially support additional capital improvements beyond the first allotment.

In the end the questions is will these investments create the additional "net new" state tax revenues to pay the notes thus not cost the taxpayers of Worcester?? Reminds me of buying stock on margin. If the stock goes up, you can make some great returns. On the other hand if the stock drops, you get a margin call.