The city of Charlotte, which will largely foot the bill for the arts facilities that Wachovia Corp. is building uptown, says it's not worried about the buildings getting finished.
Concerns have been raised because Wachovia, which lost $8.9 billion in the second quarter, said last week it had reviewed 500 bank projects and would delay or cancel some, without detailing what those projects might be.
But judging by its 2006 agreement with the city and Mecklenburg County, it's almost certain that the arts buildings will continue going up as scheduled, as the bank said last week. “There are a lot of checks and balances and protections for both parties,” said Ron Kimble, the deputy city manager.
The arts buildings refer to a theater, an art museum and new homes for the Mint Museum and the Afro-American Cultural Center, all of which are part of Wachovia's First Street Project. Encompassing about two blocks uptown, the project is to include a 48-story office tower, about 300 luxury condos, retail stores and an underground parking garage.
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About 35 stories of the office tower have been started, with a new level going up every four days. Work has not begun on the condos because they are going to be on top of the Mint Museum, a Wachovia spokeswoman said. The bank expects above-grade construction on the Mint to begin in September.
Wachovia's chief financial officer, Tom Wurtz, said last week that there was no change in schedule for the arts buildings or the office tower. The condos, he said, are “of great interest to us” but added that the bank might pursue that project with a partner. (Wachovia has since announced that Wurtz is leaving the bank.)
This week, Wachovia spokeswoman Carrie Ruddy said the bank continues to move forward on the condo project. She and Kimble both said that the arts buildings are on schedule and within budget.
“We're making great progress … and continue to be very excited about the enrichment that these facilities will bring to the community,” Ruddy said.
Kimble called Wachovia “an excellent partner for the city and county” in constructing the arts buildings. “They are doing an outstanding job in shepherding the construction of these facilities,” he added.
How it works
The deal that the city and county hammered out with Wachovia in 2006 provides multiple safeguards for the governments and a virtual guarantee that the arts buildings will be finished to their liking.
Among other provisions: Wachovia is responsible for any cost overruns. If Wachovia were bought out, the new bank would have to uphold the agreement for the arts buildings. And the city doesn't have to pay for the buildings until they're finished, nor does it have to pay for half-finished structures if Wachovia were to halt construction, so the bank has a strong incentive to finish the arts buildings.
When the four arts facilities are completed, the city will buy them for $126.9 million. (The county will pay its portion to the city, not to Wachovia.)
Contributions from Bank of America Corp. and Charlotte's nonprofit Arts & Science Council will cover $10 million of that price tag. The rest will be split almost evenly between a countywide increase in rental car taxes and a financing tool called synthetic tax increment financing, or TIF. Here are details on both:
A few years ago, the city and county told Wachovia they would seek an increase in the countywide tax on car rentals. In 2006, they won approval from the legislature to raise the tax. That extra money has to be used for transit projects, but it freed up the city's general fund for the arts complex.
TIF is a sometimes-controversial financing tool. Under it, the city and county agreed to use a portion of the property taxes that will be generated by the rest of the Wachovia complex to pay for the arts buildings.
One of the controversies around TIF is that it can seem like a house of cards: If Wachovia doesn't build the office complex, the city and county won't have the money to pay Wachovia for the arts buildings.
Government leaders say that's not a concern, thanks to another provision in the Wachovia deal. Wachovia has committed to paying at least $4.6 million in property taxes each year for 25 years, no matter the value of the complex. Kimble called that provision “the linchpin of the entire agreement.”
That means the city is protected even in a worst-case scenario where the condos aren't built and the office tower construction halts.
“The city and county would not have gone forward with the agreement unless that guarantee was in place,” Kimble said.
That provision alone guarantees that the complex will generate enough in property taxes to meet the portion of the budget funded by TIF, Kimble said, and he believes that Wachovia will “far and away exceed” the $4.6 million minimum, anyway.
The $4.6 million estimate is based on taxing a complex that is essentially worth $360 million, not including the arts buildings since they, as nonprofits, won't pay property taxes.
Wachovia now estimates it will spend $800 million on the complex, not including the arts buildings.
It hasn't disclosed the breakdown of the costs for the condo and office towers.
On a complex valued at $800 million, Wachovia would pay about $10.2 million in city and county property taxes each year.
County commissioner Bill James said this week that he has not received any updates on the arts buildings' progress. That's a problem because, practically speaking, the facilities are being built with public money, he said.
“They're just using a creative financial shell game to remove the public oversight from the process,” James said.
A Wachovia spokeswoman said the bank is providing regular updates to the city, which is driving the arts deal.