Right up until early morning March 29, a lot of people thought the Greater Boise Auditorium District wouldn’t find much of a market for bonds to finance an expansion of Boise Centre, the Downtown event venue the district owns and operates.
These skeptics weren’t just off-the-wall crackpots, either. They included Ada County Treasurer Vicky McIntyre and David Frazier, the man behind a series of court cases that have greatly restricted public debt in Idaho.
Frazier said a decision by Wells Fargo not to extend a zero-down commercial loan was an indicator of the market’s distaste for the rather complex transaction behind the project.
McIntyre, who routinely buys bonds in her elected role, said she didn’t trust the type of bond being sold to pay for the expansion, because the auditorium district was making no guarantees it would repay them. Instead, Capital City Development Corp., Boise’s urban renewal agency, was selling the Boise Centre bonds.
Bond traders disagreed. When the Boise Centre offering hit the market, offers came in for a total of $83 million — almost four times the cost of the expansion. Within an hour-and-a-half, the deal was done. More than $25 million in bonds had been sold.
It was an abrupt end to a legal struggle that started more than two years ago, when developer Tommy Ahlquist suggested including the Boise Centre expansion as part of a multi-use project his firm, Gardner Co., planned to build on the Grove Plaza.
Because it is nominally a private corporation — though its board is appointed by Boise’s mayor and affirmed by the City Council — the renewal agency can sell bonds without a vote of the people.
The auditorium district is a government, so it’s subject to Article 8, Section 3 of Idaho’s Constitution, which prohibits subdivisions of the state — including cities, counties, school districts and, yes, auditorium districts — from incurring debt for more than a year unless two-thirds of voters approve.
In order to avoid that difficult election, the district asked the renewal agency to sell the bonds and then lease the Boise Centre expansion to the district in a series of one-year leases. After the bonds expired, if all went according to plan, the renewal agency would hand over ownership of the expansion to the auditorium district for virtually no money.
The renewal agency agreed, and in mid-2014 the district took the plan to a judge for confirmation. Frazier resisted. The Boise watchblogger argued that a gradual reduction of the amount owing on the bonds would amount to a sunk cost that would coerce the auditorium district’s board into continuing payments on the bonds, even if it concluded the payments were a bad idea.
A judge denied the district’s request, and a second judge concurred a few months later. Undaunted, the district appealed those decisions to the Supreme Court, which late last year found that the agreement with the renewal agency didn’t violate the Constitution.
It was a huge victory for the district, and an expensive one. Rice said the district shelled out $747,060 on legal fees during its pursuit of judicial validation for the agreement with the renewal agency.
The success of the bonds on the open market will cover at least some of that cost. In reducing offers to the desired $25 million level, Rice said, the bond sellers negotiated down the bonds’ interest rate to an aggregate of 3.17 percent. That’s slightly lower than the expected 20-year average rate from Wells Fargo, which was 3.34 percent.
Meanwhile, construction of the expansion, which includes a ballroom, industrial-scale kitchen, pre-function space and meeting space, should wrap up soon. Rice said the district can start unpacking its boxes in mid-August. Official closing on the deal is scheduled for Sept. 1. The first events in the new space are scheduled to start Sept. 9.