June 12 (Bloomberg) -- Newark, New Jersey, where more than a quarter of residents live in poverty, is stuck paying $1 million a year on bonds for a baseball park that’s lost its main tenant.
The $34 million Bears & Eagles Riverfront Stadium, envisioned as a pillar of development in the state’s most populous city when it opened in 1999, is mostly silent this season after the Newark Bears folded amid dwindling attendance. The owners are trying to sell the club after putting belongings, including the team bus, up for auction in April.
Taxpayers in Newark and surrounding Essex County are left with a combined $2 million a year in debt payments. The expense is the last thing the city of 280,000 needs: It faces a budget shortfall of as much as $94 million and is at risk of falling under state oversight. Moody’s Investors Service cut its rating to three steps above junk last month, citing depleted reserves and budget gaps.
“They have a tight budget to begin with,” said Howard Cure, head of municipal research in New York at Evercore Wealth Management LLC, which oversees about $5.2 billion. “They don’t need to pay for an asset that’s not being productive.”
The Bears’ demise shows the challenges that localities from Atlanta to Arizona face when they finance sports venues where teams struggle to fill seats or depart and leave empty facilities.
Harrison, New Jersey, across the Passaic River, lost its investment-grade rating in 2011 after a project that included a new stadium for Major League Soccer’s Red Bulls failed to generate sufficient revenue to repay debt.
The end of Bears baseball is the latest blow for a city that has logged economic wins while fighting rising crime and fiscal strains. Panasonic Corp. moved its North American headquarters to Newark from Secaucus after receiving a state subsidy. Prudential Financial Inc. got state tax breaks to build a tower.
In the city 13 miles (21 kilometers) from Manhattan, 28 percent of the population lives below the poverty level, compared with about 10 percent statewide, according to the Census Bureau. The median household income of $34,400 is less than half the state average. Newark registered 111 homicides in 2013, the most since 1990.
Ras Baraka, a city council member and former public-school principal, will be sworn in as mayor July 1. The city has been run by an acting mayor since Cory Booker, a Democrat, resigned in October to join the U.S. Senate.
Frank Baraff, a spokesman for Baraka, said the mayor-elect was sick and unable to comment. Bears owner Danielle Dronet didn’t provide a comment in response to e-mails and messages asking about the stadium financing.
Moody’s cut about $575 million of general obligations to Baa1 on May 21, and kept a negative outlook. The New York-based company cited recurring deficits and tardy budgets. It said that costs are outstripping revenue, and that Newark has become too reliant on cash-flow borrowing.
Newark has yet to adopt a budget halfway into the year. It had a $30 million deficit from 2013 that it carried forward and anticipates a $63.5 million gap for 2014, according to an offering statement for notes sold in April.
Local officials remain optimistic. The city, county and Essex County Improvement Authority, which runs the stadium, are discussing other uses for the site with entities in the entertainment industry as well as colleges and universities, said Jim Paganelli, the agency’s executive director.
“The stadium is an asset to both the city and the county,” Paganelli said. “It can be utilized as a catalyst for further development in that part of the city.”
Baseball in Newark can be traced to before the Civil War, and Newark has hosted several defunct minor-league teams since. The Bears began playing in the International League before World War II. In 1936, the city became home to the Eagles, a Negro League team.
In 1950, the Bears franchise was sold to the Chicago Cubs, who moved it to Springfield, Massachusetts. Former Yankees catcher Rick Cerone reformed the team in 1998, and the stadium opened the following year.
When it was built, it was the second-costliest minor-league baseball facility, after a field in Rochester, New York, data compiled by Bloomberg show. The challenge in drawing fans was compounded by the abundance of professional sports teams in the region, said state Senator Richard Codey, a Democrat.
“It was a huge mistake,” he said. “There’s so much competition.”
The facility, which seats 6,200, drew an average of 453 fans for Bears games in 2013, according to the website of the independent Can-Am League. That figure was the lowest in the five-team league, and was down from about 1,000 in 2011.
Julien Neals, Newark’s business administrator, called the stadium a “treasured asset” and said the city and county are partners in its operation.
“The city has met all of its debt-service payments related to its bond obligations without interruption, and will continue to meet its commitment to Bears stadium as well as all of its other debt-service responsibilities,” he said in an e-mailed statement.
The Bears paid $60,000 a year to the authority for rent, which the team stopped paying in January, Paganelli wrote in an e-mail. The authority will now receive $24,000 per year from cell-tower rents, after sharing those proceeds with the Bears while they used the stadium.
The complex is still set to break even this year with the help of parking revenue, according to the authority’s 2014 budget. The authority collected $551,223 from parking last year, according to a 2013 audit. The facility serves local businesses.
“The garage operates in the black,” Paganelli said.
The stadium hasn’t been completely idle, as Rutgers University, Newark and New Jersey Institute of Technology hold games there.
The city is on the hook to make $14 million of principal and interest payments through 2029, according to bond documents. Annual payments exceed $1 million through 2020 before declining.
That’s money that could have been used for policing, education and sanitation, said John Mousseau, who helps manage $1.8 billion of munis as director of fixed income at Cumberland Advisors in Sarasota, Florida.
“When you get into this business of stuff that’s unrelated to what you do as a municipality, you’re always on somewhat of a slippery slope, finance-wise,” Mousseau said.
The Essex County authority sold $27.6 million of debt in 2005 and 2006 to refinance previous stadium borrowings. In 2005, it offered bonds backed by the county’s pledge to repay, and in 2006 it offered securities with Newark’s pledge, according to bond documents.
Even without the Bears, the debt has gained.
Federally taxable bonds with the city’s general-obligation pledge and maturing in October 2029 have averaged 99.3 cents on the dollar this year, up from 98.7 cents in the second half of 2013, data compiled by Bloomberg show.
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