The exact conditions of the lease between Nassau County and the operator of a new Coliseum for the Islanders won't be final before the Aug. 1 referendum on a $400-million bond issue to build the arena and a ballpark.
The document, which is intended to spell out in detail the financial basis for the deal, is incomplete because, in part, officials had just a few weeks to work it out in the lead-up to the referendum.
While the administration of County Executive Edward Mangano and the Islanders organization say the terms of the lease are essentially complete, they acknowledge that key elements are still being worked out in separate agreements.
Still under negotiation is a sublease between the hockey team and the Coliseum operator, a company created by Islanders owner Charles Wang, and how it would guarantee revenue to the county. Another key element is a nonrelocation agreement that would keep the Islanders at the arena for 30 years even if Wang sells the team. Based on the terms of the proposed lease, he would be permitted to sell the Islanders after two seasons in the new facility. Also being worked out is how revenue generated by non-hockey events would be shared with the county.
"We had literally 21/2 weeks to get the lease done, which in some instances might take six months or eight months," said Christopher Melvin, an attorney with Nixon Peabody Llp who represented the county in negotiations. "Unfortunately, we just didn't have the time to do all that documentation ahead of time so we had to make it a contingency."
Representatives for Wang and Mangano said that those agreements, which are required under the lease, will be finished before a final version is submitted for review by the county legislature if the referendum passes.
"The legislature can pass it or not pass it," Melvin said. "I guess like any bill they could say, 'Look, we're not passing it, but if you do this, this, and this, we will pass it. Then the county executive could go back to the Islanders and say, 'This is what we were told.' "
But both sides say the basic terms of the lease, including rental payments, have been agreed upon.
Michael Picker, senior vice president of the Islanders organization, said the lease as now written was 99 percent complete and language was being clarified.
"You've got the crux of the whole deal there," Picker said. One change that's being made now would ensure that the county would get revenue sharing from events held at the facility by outside promoters, he said.
Concerns over plan's status
The status of the document troubles some top Nassau officials, including Peter Schmitt, presiding officer of the legislature, and county Comptroller George Maragos.
Members of the Nassau Interim Finance Authority, the state watchdog agency that took over the county's finances in January, have also voiced doubts about the viability of the redevelopment plan. Among its areas of concern, NIFA estimated last week that the total borrowing to fund the project would exceed $800 million in principal and interest payments over 30 years.
If the voters approve the bond issue, NIFA, along with the legislature, would have to OK the lease, which would establish the main source of revenue to pay off the borrowed money. The proposed lease does not deal with the minor league ballpark at Mitchel Field.
Schmitt said in an interview that the public will essentially be voting on a "conceptual" idea rather than the specifics of building a new Coliseum or the terms of the lease itself.
If the referendum passes, changes to the lease will be considered, and the legislature will hold a public hearing before deciding whether to approve it, Schmitt said.
He said he has hired a lawyer to review the terms of the lease.
"Everything is all murky right now," said Schmitt, who like Mangano is a Republican.
Touted as economic boost
Mangano and Wang proposed borrowing the money to redevelop the hub site -- 77 acres of prime publicly owned land in the center of the county that has long been considered essential to Nassau's economic well-being. They are working against the backdrop of the expiration in 2015 of the hockey team's lease at the obsolete Nassau Coliseum and the failure of Wang's privately funded $3.8-billion Lighthouse project on the same site. Wang's vision for the property met heavy resistance from Hempstead Town officials and neighboring communities.
Newsday has reported that the Islanders are losing an estimated $20 million annually. Game attendance has fallen to the worst in the NHL, averaging 11,059 fans per game. The team finished 27th out of 30 teams last season.
The current plan asks voters to decide whether the county should spend $350 million for the new arena and $50 million for a minor league ballpark.
Mangano said the project would create 1,515 construction jobs, generate $9.3 million in tax revenue in its first year of operation, keep the Islanders on Long Island, and provide a boost to the county's economy. He's also touted a projected $403 million net benefit to the county over 30 years, though in today's dollars that would be $92 million.
As written, the county would get a minimum $14 million in annual rent for 30 years. That rental payment to the county could be higher if the arena does well under a revenue-sharing agreement that gives the county 11.5 percent of certain revenue from sports and other events. County officials estimate $26 million will be needed to cover the yearly cost of the bonds. They say millions of dollars will be generated in sales tax and other revenue that will more than cover the debt.
The county will receive no revenue from potentially lucrative television, cable or Internet contracts, according to the terms in the proposed lease. The tenant -- a company called Arenaco SPE Llc, established by Wang to operate the facility -- would sublease the arena to the Islanders. It would maintain 6,500 parking spaces, which county officials said would fill almost the entire 77 acres. Arenaco would be responsible for cost overruns during the construction phase, and maintenance and capital repairs of up to $500,000 a year once the arena is finished.
Preparing for the what-ifs
Revenue projections of $28.2 million in the first year of operations, which were included in a study commissioned by the county and include direct and indirect revenue from the project, also concern Schmitt.
"I don't believe that the income, if I can call it that, from the new Coliseum is going to cover the debt," he said. If not, taxpayers will be called upon to make up the difference.
Maragos, who plans to release a Coliseum report this week, said in an interview there needs "to be certain guarantees that the revenue will be there to pay the bonds."
He said he wants Wang to post a performance bond to cover any construction cost overruns. The lease already requires Arenaco to pay for cost overruns and to put up cash or a letter of credit, but he said that wasn't enough.
"What happens if that moment arrives and the tenant doesn't have the money to put up the letter of credit for the amount that is required?" Maragos said.
He also wants the sublease and nonrelocation agreement to be completed along with the lease, not separate from it.
"It's important to see the subordinate agreement from the Islanders be reviewed concurrently with the master lease agreement," he said. "What if the tenant goes bankrupt? The Islanders get sold? The Islanders go bankrupt? They're taken over by the NHL? All of those eventualities have to be contemplated."
If the legislature seeks substantive changes as a condition of approving the lease, Mangano and Wang would have to go back to the negotiating table, the Islanders' Picker said.
"We would have to listen to what everybody says and then we'd make a decision," Picker said. "We're not locked into anything: If the lease never gets done and never gets executed, then there is no deal."
Shall a Local Law be approved to establish "The Nassau County Hub Area Development Program" (the "Hub Program") and to:
(i) authorize the expenditure of up to $400,000,000, to be bonded by the County and expended solely for the construction of projects in the Hub Area including a new Nassau Coliseum, a minor league baseball stadium, and other economic development projects
(ii) establish a line on property tax bills dedicated to the payment of the debt service associated with the Hub Program, and
(iii) to establish a special revenue fund dedicated exclusively to the payment of the debt service on the bonds issued pursuant to the Hub Program?