Staff Response to Questions for AEG Part Two

8/6/2019 Staff Response to Questions for AEG Part Two

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1 RECEIVED

A U G 0 2 Z 0 1 1

BY:...:======.1

CITY HALL

LOS ANGELES, CALIFORNIA 90012

August 2, 2011

Councilmember Bill RosendahlEleventh DistrictRoom 415, City Hall200 North Spring StreetLos Angeles, CA 90012

Dear Councilmember Rosendahl:

Now that the negotiations on the proposed Memorandum of Understanding(MOU) with the Anschutz Entertainment Group (AEO) for the proposed Los AngelesConvention Center (LACC) and Event Center transaction are complete, we are providing

additional responses to the questions you posed in your letters of March 3, March 8 and March17,2011.

The information below is organized by the dates of your letters. For yourconvenience, we are re-printing your questions verbatim and providing the previous answers.Your questions are in italics, our original responses are in regular type, and in those instanceswhere we were unable to provide a response until the negotiations had been completed, we areproviding amended responses in bold.

It is important to keep in mind that, as stated in the staffreport and MOU, some ofthe terms of the MOU are based on information as we know it today. Final approval of thetransaction cannot occur until the Environmental Impact Report (EIR) is completed and certified,which is projected to occur in late Spring of2012. Financial markets may change, the groundlease appraisals are not yet completed, and the New Hall design is still in its early stages.Accordingly, should any of the financial assumptions change, such changes will be reported tothe Council and would be taken into account prior to any final approval of the transaction.

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Letter Dated March 3, 2011

1. Is thep roposal to construct enough convention center space to replace the missing WestHall space?

Yes.

2. It appears stadium development would limit future expansion of the Convention Centerbeyond its current size (about 770,000 square feet). Weren't there previous plans that requiredthe Convention Center to be expanded to one million square feet in order to be more competitivewith the top tier convention cities such as Chicago and Las Vegas?

We are not aware of previous plans, per se, which required the LACC to expand to onemillion square feet. When the Staples Center transaction was negotiated, the City recognized thatit had to preserve its options to expand the LACC and did not want to be boxed in by the StaplesCenter development or the anticipated LA LIVElHeadquarters Hotel project. Some basicschematic drawings were prepared to identify potential expansion alternatives, but the

development of any formal plans to expand the LACC would have been futile given the lack ofhotel space in close proximity to the LACC, the current and projected performance of the LACCat the time given competing facilities and the costs associated with an expansion. To protect itsinterests, the City required AEG to include in any development plans an LACC expansion northfrom the West Hall to provide up to a total of 1 million square feet of exhibit space. The Citywould have to fund the expansion and negotiate a purchase of the air rights from AEG. TheCity's right to expand on AEG property expires on October 21, 2021.

In order to be competitive and attract the largest conventions, the LACC would need atotal of approximately one million square feet of exhibit space. The AEG proposal states that theEvent Center will have a retractable roof and be designed in a manner to provide viable exhibit

and meeting space for use by the LACC, bringing the total space to over one million square feet.Whether or not the proposal meets that requirement will be a subject of review by the City'sconsultants, LACC and LA INC and will be addressed through the negotiations.

The MOD requires that the Event Center have a roof so that it will provide viableadditional exhibition and meeting space for the LACe. The roof mayor may not beretractable depending on design and cost issues.

3. AEG says that the floor of the football stadium could be covered and, with a connection,provide an additional 80,000 square feet of space for major conventions. In terms of attractingtourism, how does this configuration compare with convention centers where all the space is

within the convention center?

In addition to our response to #2 above, we would add that the AEG proposal seeks toconsolidate the current 750,000 square feet of exhibit space into immediately adjacent hallswhich would correct an often-cited deficiency in the current LACe design. The additionalexhibit and meeting space provided by the Event Center would be in the same location as thecurrent West Hall. Pedestrian flows and access between the new South HalllNew Hall complex

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and the Event Center would be significantly better than the current access between the South andWest Halls. Accordingly, although the overall footprint of total exhibit space available to theLACC would remain roughly the same, the consolidation of the vast majority of the exhibit spaceand improved access to the remainder will enable the LACC to better compete for the largestconventions.

The City'S consultants, the LACC and LA INC will analyze whether the ultimate designmeets the stated goals of the proposal and how competitive the newly configured LACC will be.We will report the results oftheir analysis at the conclusion ofthe negotiations.

As stated above, the Event Center will have a roof and will be available forexhibition and meeting space. With the additional space provided by the Event Center, thetotal LACC exhibition and meeting space will exceed 1 million square feet and will be thefifth or sixth largest convention center in the nation.

The City's consultants, Convention, Sports and Leisure, International (CSL), used a

conservative estimate of five new events as a result of the rehabilitation and expansion ofthe LACe. CSL has stated that there are few large conventions that would make use of thestadium floor. They identified only two that the City could attract. However, they did notinclude those among the five new anticipated events. The General Manager of the LACChas stated that the primary benefit to the LACe of the Event Center will be the additionalmeeting room space. Many large conventions, such as pharmaceutical conventions, requiremore meeting rooms than the LACC can provide, and the meeting and ancillary spaceprovided in the Event Center will enable the City to compete for those conventions.Further, CSL indicates that failure to improve the LACC would result in a loss ofconvention business over time.

4. How realistic is it to assume that major events comfortable in locations providing themwith one million square feet in a single building could be convinced to relocate to Los Angeleswhere part of their event would require walking through a connector of some sort and on to thefloor of afootball stadium?

The City'S consultants, the LACC and LA INC will analyze whether the ultimate designmeets the stated goals ofthe proposal and how competitive the newly configured LACe will be.We will report the results oftheir analysis at the conclusion of the negotiations.

As stated above, CSL projects five new conventions after the rehabilitation of theexisting LACC and the construction of the Event Center.

5. Can anyone name an event or two that needs to have a football stadium connected to aconvention center in order to make their event work?

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The City's consultants will provide a comparative analysis of the newly configured LACCwith competing convention centers. We will report the results of their analysis at the conclusionof the negotiations.

As stated above, the CSL projections on which the MOD financial analysis is based

do not assume any new conventions that would be attracted to the City because of theEvent Center floor. However, the meeting rooms and ancillary space in the Event Center,which will be directly connected to the LACC South Hall and New Hall, will enable theLACC to compete for large conventions that require more meeting room space than theLACC can provide.

6. Considering construction dust, noise, equipment, etc., how realistic is it that thereplacement space for the West Hall could be built without causing disruption to the events wealready have booked?

Coordination with the LACC and any impacts on LACC operations during the

construction are part of the ongoing negotiations with AEG and will be reported on at theconclusion of the negotiations.

The MOD requires that the New Hall and parking be completed prior todemolishing the West Hall, unless the City consents to an earlier West Hall demolition.AEG has been working closely with the LACC and LA INC in construction scheduling tomitigate any potential disruption. To date, no convention planners have indicated that theywill not consider the LACC because of the potential disruption due to construction activity.In fact, the California League of Cities has very recently decided to hold its 2014convention at the LACC with the knowledge that construction will be well underway atthat time. Finally, the MOD provides that the City will be reimbursed by AEG for any lostrevenue that is a direct result of the construction activity.

7. Since events are planned years in advance, has anyone contacted those who havecontracts with the Convention Center to determine how they feel about possibly of having thiskind of construction going on during their event?

The LACC and LA INC are in contact with planned and potential exhibitors to assesstheir concerns relative to construction activity should the transaction move forward. Mitigatingnegative impacts, if any, on the LACC from the construction activity will be included in thenegotiations.

The LACC General Manager and LA INC are in regular contact with anticipatedand potential convention and trade show planners. As indicated above, to date, noconvention planners have indicated that they will not consider the LACC because of thepotential disruption due to construction activity.

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8. What are the chances that some clients who are booked into the Convention Center eitherdemand a discount, or go somewhere else and maybe never come back?

Coordination with the LACC and any impacts on LACC operations during theconstruction will be reported on at the conclusion of the negotiations. Potential impacts on

revenues and future bookings, including, if applicable, loss of current clients will be reported onat the conclusion of the negotiations.

To date, no convention planners have indicated that they will not consider theLACC because of the potential disruption due to construction activity. In fact, theCalifornia League of Cities has very recently decided to hold its 2014 convention at theLACC with the knowledge that construction will be well underway at that time. The MOUprovides that the City will be reimbursed by AEG for any lost revenue that is a directresult of the construction activity.

9. In the best and worst case scenarios, how much revenue could the ConventionCenter lose during and after construction, and who would make up the losses?

Potential financial impacts on LACC revenues and options to mitigate those impacts arepart of the ongoing negotiations with AEO and will be reported on at the conclusion of thenegotiations.

The LACC is not expected to lose any events or revenue during construction and sofar no scheduled, tentative, anticipated or potential event planners have indicated that theywill cancel or not consider the LACC due to the construction. Accordingly, at this point,any "worst case" scenario would not be based on any identifiable data. If, over the nextDumber of months, the LACC learns that they are losing events as a result of theconstruction, that information will be reported on to the Council prior final approval of thetransaction. Furthermore, as stated above, the MOU calls for AEG to reimburse the Cityfor lost revenues because of the construction.

10. If it's valid to use economic multipliers to measure the economic benefits of these events,shouldn't those same multipliers be used to calculate the losses?

On past transactions the City has not used "economic multipliers" as a core decision pointin approving transactions and measuring the extent of the City's participation. The City's policyprovides that no more than 50% of net new direct tax revenue may be used for reinvestment in aproject. The Ad Hoc Committee reiterated this policy as one of the City's negotiating principleson the AEO proposal. As a result of the City policy, the City realizes the full benefit of anyeconomic multipliers resulting from a project. In some cases, economic multipliers may beestimated for informational purposes only but the direct benefits themselves must be sufficient tojustify participating in the project.

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As to whether economic multipliers should be used to calculate losses, another corerequirement that the City has applied to past projects is that the existing General Fund be fullyprotected. The Ad Hoc Committee also reiterated this policy as a negotiating principle.Accordingly, we would not recommend a transaction in which the City might ultimately incurlosses, so calculating an economic multiplier to be applied to losses is not applicable.

11. How long will it take to build both replacement space and the stadium?

The New Hall and Event Center construction schedules will be determined during thecourse of the negotiations.

If the transaction is approved, construction would start on the New Hall in thesummer of2012 and the New Hall would open in the late spring or early summer of2014.West Hall demolition would begin in the late spring or early summer of2014 and the EventCenter is projected to be complete for the fall 2016 NFL season.

12. When the City Council agreed to sell bonds to expand the Convention Center 18 yearsago, what promises or projections were made about how they would be paid off? The economicbenefit that would come from the project? Were those expectations met, or did they turn out to beoverly optimistic?

The City issued debt in 1985 to pay for the expansion of the Convention Center. Over theyears the City has incrementally increased TOT, with the support of the hotel community, tofinance the construction of the facility. Currently, a total of3.5% of taxable hotel sales isallocated to offset debt service costs. At the time of the expansion, it was projected that the TOTallocation and Convention Center operating revenues together would be sufficient to cover bothoperating and debt service expenses. When the debt service component was removed from theConvention Center Revenue Fund and placed into the Capital Finance Administration Fund, thefocus of using Convention Center revenues shifted to offsetting operating expenses only.Meanwhile, the stock market crashed and the economy entered into a recession. The annual debtservice payment increased and TOT revenues dropped. The TOT allocation for 2010-11 amountsto $34.2 million whereas the annual debt service payment on the Convention Center, notincluding the Staples Arena, is $48 million. As a result the General Fund subsidy has increased tooffset the gap.

The Convention Center facility is a regional asset and was built to generate an economicstimulus. By booking citywide events that target overnight visitors for the purposes of generatingroom nights, the facility creates an overall economic benefit to the City. Although citywideevents are a priority, the Department's focus has at times shifted towards accommodating localconsumer events and trade shows, which have a greater impact on the Department's bottom linebut little impact on hotel sales. The struggle continues to be identifying the balance between localshows that attract day visitors and enhance operating revenues versus citywide events thatgenerate visitor and tourism spending and contribute to tax revenues. As the City continues itsdiscussion on expanding the LACC facility for the purposes of becoming more competitive

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in the convention industry, policy discussions on LACC operations will also be critical tosupporting the City's efforts of attracting more citywide conventions and less localconsumer and tradeshows.

13. Los Angeles was trying to convince Comic Con to move here from San Diego, but it

decided to stay in San Diego. Los Angeles seems like a more logical location for the event. Whathappened? Did rumors of the construction activity scare them off?

According to LA INC, San Diego may be a more logical location for Comic Con. It is anevent created by San Diego business interests and talks about moving the event to Los Angelesmay have been a negotiating tactic to ensure a good proposal from the San Diego ConventionCenter. We received no feedback that rumors of construction activity at the LACC played a rolein their decision to stay in San Diego.

The above being said, hosting Comic Con would significantly benefit the City and we aremore likely to be successful in attracting the event to the LACC with an improved design and

more available meeting and event space.

14. The L.A. Auto Show occupies the entire Convention Center nearly the whole month ofNovember which isfootball season. How will the two co exist?

As discussed above, the current LACC exhibition space will be consolidated and will bemore efficient for the auto show and other exhibitors. The auto show may also benefit from theadditional exhibit space in the Event Center. Access to the Event Center for LACC events is asubject of the negotiations and will be reported on when negotiations are complete.

The MOU requires the establishment of a Macro Booking Committee to coordinateschedules for all of the venues at the LACC/StapleslEvent Center campus. AEGanticipates that they will not hold events at the Event Center when the auto show is open tothe public. Since it is such a large event, the auto show may, in fact, make use of thestadium floor and seating.

15. Conventions set up and tear down during the weekends. When a multi day convention isbeing held, won't there be conflicts with the football games and thereby limit the number ofmajor conventions that we could attract?

Operational and coordination issues and procedures are the subject of the negotiationsand will be reported on when the negotiations are completed.

The MOU requires the establishment of a Macro Booking Committee to coordinateschedules for all of the venues at the LACC/StapleslEvent Center campus. However, thenewly designed LACC will have loading and staging space and it is not anticipated thatEvent Center events will interfere with convention set-up and tear-down.

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1. The General Fund is paying off the $445 million in existing Convention Center bonds atthe rate of $48 million per year. Is anything being talked about topayoff or pay down that debt?Wouldn't the bond holders have to approve apaying off of those bonds? How would that be

done?

There are currently $417 million in outstanding LACC bonds. Periodically, the Cityreviews existing debt for refinancing purposes. As discussed above, the TOT was increased tohelp cover the debt service. Paying off bonds is also called a defeasance. Bond holders wouldnot be impacted by a defeasance, so no consent is required. There are federal tax and state bondlaws which govern how a defeasance is accomplished. In essence, it involves setting asidemoney in a trust fund which is invested in qualified securities. Those funds are then used to paythe bond holders until the bonds are paid off. Other than a small portion of the outstandingbonds that relate to the West Hall, which will have to be defeased if the AEG proposal isapproved, there are no discussions of defeasing the remaining bonds.

2. Reports are that the city would have to sell $350 million in new bonds to replace the lostWest Hall space. That would mean $29 million/year in new debt payments for the next 30 years.What's the source of revenue for that likely to be, and how was the $350 million figure arrivedat?

The $350 million in new bonds which has been discussed is a preliminary estimate. Theactual amount that would be issued will be determined through the negotiation process and basedon actual project costs. Annual debt service on $350 million is estimated to be approximately$25 million. The City's consultants are evaluating various debt structures. The Ad HocCommittee established as a negotiating principle that any costs associated with the bonds be fullyoffset by revenues from private sources and no more than 50% of the actual net new directGeneral Fund tax revenue generated by the project. The financial terms to ensure full coverageofthe debt service is a key subject of the negotiations and will be reported to the Council at theconclusion of the negotiations.

Under the terms of the MOU, the City's obligation has been reduced from theoriginal $350 million to $195 million. As our report indicates, the reduction is due to: (1)agreement by AEG to finance the construction of the parking garages; and (2) agreementby AEG to levy a special tax on LA Live and the Staples Center ground lease so that theCity can issue Mello-Roos bonds, which are entirely an obligation of AEG.

Debt service on the $195 million in bonds will be covered by the Event Centerground lease payment (56%) and net new General Fund taxes (44%). The net new taxesapplied to the bonds are easily identifiable and stable. Only Possessory Interest,Construction Sales and on-site Parking taxes from Event Center events will be applied tothe City's portion of the $195 million in bonds. Of those revenues sources, only the on-siteParking taxes are impacted by Event Center performance, but those taxes represent a very

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small portion of the overall debt service. As indicated above, there will be a gap fundingagreement, backed by letters of credit, which will require AEG to cover the debt servicecosts if there are revenue shortfalls.

3. What will end up being the total bill when the $445 million in bonds are paid off?

The total cost for Convention Center debt, including payments on principal($416,985,000) and interest ($119,769,725) amounts to $536,754,725. The Los AngelesConvention and Exhibition Center Authority also issued debt for the Staples Center project toacquire property for parking north of the arena. The total payments on principal ($53,454,309)and interest ($19,474,309) will amount to $72,928,618. All of the costs of the Staples Centerdebt are covered by admissions fees and incremental parking revenue from Staples Center event.

4. Given the increases since then in construction costs and the costs of selling bonds in astruggling municipal bond market, what can we expect the total bill and annual payments to beon the sale of$350 million in new bonds?

The condition of the municipal bond market can change over a relatively short period oftime. The cost assumptions used in the negotiations will be based on current market conditions,but should the transaction move forward, bonds would not be issued until mid 2012. Thecondition of the bond market at that time will be assessed and any agreement between the Cityand AEG will be based on actual costs of the transaction. Updated cost projections will bereported to the Council when it considers the issuance of the bonds.

5. It is correct to assume the ticket taxes from eight full capacity football games a yearwould generate only about $9 million per year?

We are unable to answer this question until we have input from the City's financialadvisors. Assessing the projected financial performance of the Event Center will be a primaryduty ofthe financial advisors. This question will be addressed when negotiations are completedand a report is sent forward to the Council. It should be noted that the City will not be imposinga ticket "tax. II The AEG proposal contemplates that the developer will institute an admissionsfee as one mechanism to satisfy their obligation to the City.

The proposed MOU does not call for an Admissions Fee to be a direct source offunding for AEG's obligations to the City. The MOU provides for Ground Lease paymentsand special taxes to satisfy that obligation. The MOU authorizes AEG to implement anAdmissions Fee, but AEG's obligation is independent of how much that Admissions Feegenerates.

6. Does AEG expect the city to attempt to sell the bonds before a team and enough eventshave been secured to produce adequate ticket tax revenue?

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No bonds will be issued until a team lease is finalized and the City has independentevidence that there will be sufficient events and net new revenues generated to support the bonds.

7. Since taxes on tickets would normally flow into the General Fund to help pay for servicessuch as police officers, wouldn't the use a/ticket taxes to pay off the bonds be defined as a

''public subsidy?"

Admissions fees or charges are not imposed by the City and would not normally flow intothe General Fund. Accordingly, using anadmissions fee as a source of funding to offset the debtservice costs would not be a public subsidy, it would be using private funds to help finance apublic project.

8. Were the developers of the Staples Center allowed to use ticket taxes to help repay thebonds that were sold to buy the land they wanted?

Yes, but as discussed above, the City did not impose a ticket tax. AEG used the

admissions fee to cover a portion of their obligation to the City.

9. When the developers a/the Staples Center offered a guaranty that those bonds would bepaid off, the City Council was ready to accept their offer until an outside contracts attorneydetermined that the guaranty was far from iron clad, so he rewrote a new one. I haven't heardAEG being specific about its guaranty, so shouldn't the city detail what it/eels constitutes aniron clad guaranty? Who will the city's "guaranty expert" be? In the Staples deal it was the CityAttorney until an outside expert was hired.

The assertions in this question are incorrect. The City negotiating team did not sendforward to the Council a proposal on the Staples Center without a Letter of Credit (LOC) as theguarantee mechanism. The City negotiating team proposed this early on. The developersobjected because an LOC is very expensive and they proposed alternatives to the City team. TheCity team evaluated those alternatives but did not believe that they adequately protected the City.Accordingly, when the matter went forward to the Council for consideration, an LOC wasincluded. There was outside counsel on the transaction, but something less than an LOC wasnever under consideration by the Council and at no point did an "outside contracts attorney"determine that the guarantee was "far from iron-clad."

The nature of the guarantee relative to the AEG proposal will be one of the mostsignificant issues in the negotiations. The City's financial advisors and attorneys will provideinput on guarantee options and implications and the proposed structure of the guarantee will besent forward to the Council for consideration when the negotiations are concluded.

The guarantee structure was discussed at length in the negotiations and the City'soutside financial experts provided guidance to the negotiating team in developing aguarantee structure which provides strong protections for the City. The MOU provides forguarantees during three periods: (1) construction; (2) start of operations and stabilization;

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and (3) ongoing operations. During each period a LOC will be in place to back AEG'sobligation to fund shortfalls, if any, in the non-tax and net new tax revenues used to makedebt service payments. Additionally, during construction a completion guarantee will be inplace. Finally, the City will always have the option of terminating the ground lease in theevent of a default. The staff report, MOU and presentation materials provide additional

details on the proposed guarantee structure.

10. The plan appears to include demolishing the 4,700 parking spots that are under the WestHall. Is it fair to estimate that the replacement cost would be about $25, 000 per spot, and thatAEG has said it would build one new parking structure and renovate another parking one? Whatwould be the total cost of that, and who would pay for it? Would it be taxes that would normallygo to the General Fund?

The parking spots under the West Hall would be removed, but the proposal calls forreplacing that parking and adding 1,400 net new parking spaces. The parking would be ownedby the City. The total cost of the replacement and new parking has yet to be determined but is

included in the $350 million preliminary estimate of the total project costs. As discussed above,debt service on the $350 million in bonds would be paid from the General Fund, but thetransaction will only move forward if private revenue sources and no more than 50% of the netnew General Fund tax revenues directly related to the project are sufficient to offset the costs.The extent to which incremental parking revenues and net new parking taxes would be used tosupport the bonds is subject to negotiation. However, since these would all be new revenues tothe City, those taxes would not normally go to the General Fund absent the project and theincreased number of parking spaces.

1l. !ftaxes generated by the stadium didn't go to the General Fund, but instead were used topayoff the bonds, wouldn't that significantly diminish the proposed financial benefits of theproject to the city budget for a long time?

The intent of this question is somewhat unclear, but as we understand it, the answer is no.The taxes from the Event Center will flow to the General Fund. The new bonds issued for theEvent Center will be an obligation of the General Fund. However, the transaction will onlymove forward if no more than 50% of the net new tax revenues generated by the Event Centerplus private revenue sources and the developer guarantee fully offset the costs. Since the WestHall is currently public property, there is little tax revenue being generated, so absent the EventCenter, there will be no net new tax revenue. The financial benefits to the City from thetransaction will come from increased bookings at the LACC and the related tax revenuesCitywide, and no less than 50% of the net new General Fund tax revenue directly related to thedevelopment. Additionally, as discussed above, the "multiplier effect" related to jobs creation,increased property values, additional off-site sales taxes resulting from increased employment,etc., will be captured in its entirety by the City.

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12. Has AEG proposed that the stadium will pay the existing $48 million of annual debtservice on the existing convention center bonds AND the $38 million of new debt service?

No.


1. How it is possible to contend that no public money will be used while at the same timeask the City to sell bonds? Wouldn't it be more accurate to say that it will require public moneyto be used, and that the risk to the taxpayers hasn't yet been calculated?

The AEG proposal states that no public money will be used to build the Event Center.The Ad Hoc Committee adopted that requirement as a negotiating principle. However, neitherAEG nor our offices have asserted that there would be no public money used to build the NewHall. As stated previously, the transaction will only move forward if the public money reinvestedin the public project amount to no more than 50% of the net new direct General Fund tax revenue

generated by the project. Additionally, the Ad Hoc Committee stated as a negotiating principlethat there must be "substantial" private funding to offset the debt service on the bonds. Finally,the Ad Hoc Committee established, as a negotiating principle, that there shall be no risk to theCity'S current General Fund base. Accordingly, while there would be net new public moneyinvested in the New Hall, the Ad Hoc Committee is also requiring substantial private funding forthe public project.

The financial terms of the proposal are a subject of the negotiations. Details relative tothe proposed financing and an assessment of the risk, if any, to taxpayers will be reported to theCouncil at the conclusion of the negotiations.

The MOU clearly provides that there is no public money in the Event Center.Furthermore, AEG will be paying fair market value for all ground leases including airrights.

As was contemplated in the original AEG proposal and presented to the Council onseveral occasions by staff, there will be net new General Fund tax revenue used to supporta portion of the bonds for the New Hall. Overall, funding for the New Hall bonds will becomprised of 73% non-tax funding sources (ground lease payments and Mello-Roos specialtaxes) and 27% from net new tax revenue (Construction Sales, Possessory Interest andon-site Parking taxes)

2. Why does the developer need the City to sell bonds? Why don't they borrow the moneythemselves to replace the lost convention space?

The cost of capital to the developer is much higher than the City's cost of capital.Furthermore, the New Hall will be a publicly owned part of the LACC entirely within the control

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of the City and is, therefore, an appropriate use of tax-exempt bonds. It is in the City's intereststo make the financing for the New Hall as economical as possible.

3. Many observers have challenged the prediction that the stadium project would produce18,000 jobs (8,000 of them permanent). Some independent economic studies have concluded that

the economic impact of afootball stadium on the local area is minimal. Is there a realistic andindependent projection available?

The City's financial advisors will perform an independent analysis of the jobs andeconomic impacts of the proposal and their results will be reported to the Council at theconclusion of the negotiations.

The City's consultant, eSL, provided a more conservative estimate of direct newjobs created by the project. They project a total of approximately 7,000 net new jobs.However, it is important to note that this projection includes only those jobs directlycreated by the project. It does not include indirect job creation from the overall economic

impact of the project. Other jobs figures that have been cited include the indirect jobs.CSL's report transmitted with the MOU as well as the presentation material provide moredetail on the direct spending, total output, earnings, employment and net new taxes fromboth the Event Center and the LAce rehabilitation/expansion.

4. Has the CRA project area in this part of town expired so that tax increment funds couldnot be spent on the stadium project? Would it still be possible to use CRA money forinfrastructure improvements?

The proposed site for the Event Center is part of the old CRA Central Business Districtredevelopment area which has expired, and all funds being generated within the area are beingused to support existing obligations. That being said, the financial details of the proposal andfunding options, including potential CRA involvement, are part of the ongoing negotiations andwill be reported on when the negotiations are concluded.

There is no proposed CRA funding for the Project.

5. Why not sell bonds to expand the size of the Convention Center and renovate other partsin order to make it competitive? In terms of creatingjobs, boosting the economy, and increasingtourism, how does that compare to the AEG plan?

In order to be competitive, it is clear that the LACC must be re-designed to consolidatethe main exhibit halls in adjacent locations and add exhibit space to provide a total ofapproximately 1million square feet. It is also clear that if the City retains the West Hall it mustmake substantial capital investments in it, estimated to cost a minimum of $50 million.

The City could improve the LACC on its own without the AEG proposal by sellingbonds. The City could simply refurbish the West Hall, build the New Hall and refurbish the

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West Hall, exercise our option to expand the West Hall to the north using AEG air rights, or acombination of the options. The cost of the various options would vary widely, from a minimumof$50 million for simple refurbishment of the West Hall, to well in excess of$350 million if wewere to build the New Hall and replace and expand the West Hall to the north.

The difference with, and main benefit of, the AEG proposal is that it may provide theopportunity to leverage significant private funds to finance the LACC improvements, ensure thatany public funds that are reinvested in the project are limited to a portion of the net new taxesgenerated by the development, and establish a third-party guarantee to ensure that the City'sGeneral Fund base is protected. Finally, as stated above, the short- and long-term jobs impacts ofthe proposal are being evaluated.

If the City were to proceed with the improvements on its own, the City would be takingall of the risks associated with the transaction and would not be able to leverage private revenuesassociated with the privately owned project to offset the costs of the public project. Theexpansion and refurbishment of the LACC would be expected to generate increased convention

activity with a commensurate increase in the TOT and some other General Fund taxes. However,it is not realistic to assume that the increased activity from more conventions will, by itself,generate sufficient General Fund revenues to support the bonds.

Notwithstanding the above, it is imperative that whatever agreements are reached on theAEG proposal be in the public interest. Should the City and the developer be unable to reachagreement on a transaction acceptable to the parties, the City must evaluate how it intends toremain competitive in the convention business and develop options to make the necessaryimprovements to the LACC. These options may include simply financing the improvementsourselves and recognizing that new revenue sources will not fully cover the costs or exploringother public/private options.

6. Does the new Proposition 26 require that the proposed ticket tax be approved by voters?

If the City were to impose a ticket tax it is likely that it would require voter approval.However, as discussed above, the City is not contemplating going to the voters for approval of aticket tax. The proposal contemplates that AEG will impose an admissions fee. The potentialfunding sources for the transaction are being analyzed and are a subject of the negotiations. Theresults of the analysis will be presented to the Council when negotiations are completed. To theextent that there are legal implications of the potential funding sources, those will be presented tothe Council in closed session.

AEG's obligations to the City are in the form of ground leases and Mello-Roosspecial taxes. While AEG is authorized under the MOU to levy an admissions fee, that isindependent of their obligation to the City and in no way would such an admissions fee beimposed by the City or subject to a vote under Proposition 26.

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The total and annual cost of existing bonds on the LACC are not estimates but actualobligations payable to bond holders. The amount in each year's payment is from the debt serviceschedule that is based on what bondholders wanted to buy at the time of the bond sale.

The 2011-12 debt service payment on LACC bonds is $48,466,178, and $3,853,500 for

the Staples Center Arena for a total annual payment of $52,319,678. By 2022-23 the City willhave paid a total amount of $536,754,725 for Convention Center and by 2023-24 a total of$72,928,618 for the Staples Center Arena, in principal and interest. All debt service related tothe Staples Center Arena is funded by admissions fees and incremental parking revenue fromStaples Center events.

b. The total and annual cost a/the project to replace the West Hall.

As explained above, the preliminary estimate of the total cost of the New Hall project andrelated parking is $350 million. The Bureau of Engineering (BOE) as well as the City's financialadvisors will independently analyze the total cost of the project. The amount of bonds that would

be issued will be based on the actual cost ofthe project and will be addressed in the negotiationprocess.

As stated in the staff report and MOU, a total of $275 million in bonds will be issuedto construct the New Hall. Of that amount, $195 million will be a City obligation and theremaining $80 million will be a Mello-Roos financing which is entirely the obligation ofAEG. Furthermore, 56% of the debt service on the City's $195 million in bonds will becovered by the Event Center ground lease.

c. The cost of infrastructure improvements near and around the stadium.

Infrastructure improvements related to the project will be identified in the ElR. The costof those improvements will be determined by the appropriate agency depending on the nature ofthe improvements.

d. The loss of Convention Center revenue during construction.

Potential financial impacts on LACC revenues and options to mitigate those impacts willbe analyzed by the LACC, LA INC and the City's financial advisors and will be reported on at theconclusion of the negotiations.

The MOU provides that AEG will reimburse the City for lost LACC revenue as aresult of the construction. To date, we are unaware of any potential loss of revenue.

10. If improvements to the infrastructure around the stadium are needed, who would pay forthem?

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Documents

Staff Response to Questions for AEG Part Two