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You are tasked with calculating the property tax needed to fund construction and operation of a $22.5 million complex. The facility’s annual operating budget is forecast at $3.6 million, to be covered by revenues from programs offered at the facility. A 30-year general obligation bond with a rate of 5.5% will be issued to pay for the facility’s construction costs. The net assessed value of property in the municipality is $725 million.

1. Calculate the amount that must be set aside each year to meet the bond’s principal and interest obligations over 30 years.

2. Calculate the additional millage required to cover the project’s debt service.

3. For an owner of property with a total assessed value of $15,000, by how much will his/her property tax increase?

Perhaps one of the most successful public/private partnerships between a municipality and a private entity is the USTA Billie Jean King National Tennis Center. The National Tennis Center, located in Flushing Meadows, New York, is the world’s largest public tennis facility. The partnership between New York City and the United States Tennis Association (USTA) is classified as a private-sector takeover. In a private-sector takeover, a private organization assumes responsibility for operation of a publicly owned facility. (See Chapter 9 for a discussion of public/private partnerships.)

THE PROBLEM

The partnership between the USTA and New York City began in the late 1970s (Specter, 1997). Prior to its move to the National Tennis Center, the U.S. Open was played at the West Side Tennis Club. As its popularity increased, the tournament began to outgrow the site. At the same time, the relationship between the USTA and the West Side Tennis Club was deteriorating. During negotiations for a lease extension in 1976, the USTA was presented with a take-it-or-leave-it option of paying $7 million for needed renovations at the club and ceding much of its control over the tournament and its revenues. The general attitude of the membership was that the tournament’s success depended on the club. Then USTA President Slew Hester summed up their attitude thus: “The members of West Side do not need the U.S. Open as much as the U.S. Open needs the West Side Tennis Club” (p. 10).

THE PLAN

Faced with the club’s unfavorable offer, Hester began to look for new sites in the New York area. While flying over New York City, he noticed the Singer Bowl, sitting vacant on the grounds of Flushing Meadows Park (the site of two World’s Fairs). Thinking that the site would be perfect for the U.S. Open, he began to talk to city officials. Fortunately for the USTA, the city had been trying to sell the Singer Bowl for five years (Specter).

THE OFFER

In exchange for taking over the Singer Bowl and the land surrounding the stadium, the USTA offered to spend a minimum of $5 million to renovate the site and facility. The USTA sought a 15-year lease agreement giving them exclusive use of the facility for 60 days each year. Further, the USTA offered to maintain the site and operate it as a public municipal tennis facility. As rent, the USTA offered to pay the city 10% of court rental fees or an annual minimum of $125,000, whichever was higher. The city agreed, and the partnership between New York City and the USTA began in 1977 (Specter).

THE RESULTS

The USTA spent $10 million renovating the Singer Bowl and developing the land into a world-class tennis facility. Out of the shell of the Singer Bowl, the USTA created Louis Armstrong Stadium and the Grandstand Court for tournament use. Outdoor courts were built for tournament and public use, as well as an indoor tennis complex with nine courts. Within ten months of renovations beginning, the first U.S. Open was played at the site. New York City had a new public tennis facility, and the USTA had created a facility to promote the game of tennis. The U.S. Open soon was generating over $10 million per year for the USTA (Specter).

TODAY

The USTA and New York City extended their initial 15-year agreement, as the partnership has been beneficial to both parties. In 1995, the USTA began a four-year, $285 million construction project to build Arthur Ashe Stadium and to renovate Louis Armstrong Stadium and the grounds of the National Tennis Center (United States Tennis Association, 2015). The USTA provided all funds for the renovations, which were completed with no costs to the city or its taxpayers. Its next upgrade began in 2014 and is scheduled to be completed in 2018. A new practice area, courts, and a tournament gallery were completed in 2014. By 2016 a roof on Arthur Ashe Stadium should be complete and a new grandstand stadium will open. Finally, by 2018 a renovated Louis Armstrong Stadium will be complete. The total cost of the project is estimated at $550 million, including $100 million for a retractable roof on Ashe Stadium. No public funds will be used for the project. Today, the center remains completely public and is open for use 11 months of each year. The USTA now pays $400,000 per year plus 1% of the U.S. Open’s revenue in rent. In 2014 this totaled over $2.5 million (United States Tennis Association). The current lease began in 1994 and had a term of 25 years. The USTA then has six 10-year renewal options and a final 14-year renewal option on the property. The quality of the facility has improved since its opening. In addition to the stadium courts and grandstand court, 20 outdoor tennis courts are available for public use. The Indoor Tennis Center has 12 courts, classroom space, fitness facilities, a pro shop, and a café. For the fans of the U.S. Open, Arthur Ashe Stadium seats more than 22,000; it is the largest tennis stadium in the world (United States Tennis Association). Revenues for the USTA have increased dramatically. According to the Sports Business Journal, the U.S. Open is the top stand-alone sporting event in the world (Kaplan, 2008). In 2012, the tournament generated over $230 million in revenues and $130 million in profit.

Case questions

1. What benefits did the USTA receive when it entered the partnership with the city?

2. What benefits did the city receive?

3. Do the benefits to both parties seem equal? Why or why not?

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