A not-so-private plan: Virginia Beach taxpayers fund deal with Chinese

By Kaitlyn Speer | Watchdog.org, Virginia Bureau

ALEXANDRIA, Va. — Another Chinese company plans to invest in the Old Dominion, and Virginia Beach taxpayers will help foot the bill.

Gov. Terry McAuliffe announced a few weeks ago Shandong Tranlin Paper Co.’s plan to invest $2 billion in Chesterfield County. Now, China Machinery Engineering Corp. of Beijing plans to partner with a Virginia-based company to build an 18,000-seat arena and sports complex.

The 50,000-square-foot facility will cost an estimated $200 million, but that doesn’t include other costs paid by Virginia Beach, an additional $10 million for other costs, or the land the city is contributing to the deal.

The arena is meant to serve as a multi-purpose site with plans to host concerts, sporting events and maybe even circuses. And while Virginia Beach is the most populous city in Virginia, it has no major sports team.

“We are confident this is a successful model and are very excited,” said Valerie Wilkinson, chief financial officer for United States Management LLC, the Virginia-based company that submitted the plan to Virginia Beach for consideration. “This will be a year-round draw that really fits in well with the greater infrastructure of the beach.”

Doug Smith, deputy city manager for Virginia Beach, said it was too soon to determine whether the plan will be economically profitable.

“(We) obviously don’t have that answer yet,” he told Watchdog.org. “It’s really an economic development initiative and hopefully a catalyst for others.”

While USM will own the arena, the plan will call for money coming from other places — like a Chinese bank.

To fund the project, this Chinese bank will loan USM $170 million of the proposed $200 million cost. It’s willing to give out the loan, according to Wilkinson, because of the Chinese company’s involvement.

“They do that because they want to have the access,” Wilkinson said. “There would be some requirement for Chinese content in building of the arena. They look at where they can go and do projects and have access and are very interested in the United States.”

USM will fund the rest of the money, and Virginia Beach taxpayers will fork over $52.7 million outside of the privately funded $200 million, for things like roadway improvements and parking lots. It also would cost the city $7 million annually in tax revenue generated by the project to pay down USM’s debt, and there is the potential for a $26 million cost if the city chooses to make other improvements.

CMEC didn’t respond to Watchdog.org’s request for comment.

Further details about finances haven’t been finalized. USM says the city will not have to step in and give more money even if the funds don’t come through to cover the loan. The $26 million optional improvements were not part of USM’s proposal, according to Wilkinson, and the $52.7 million was similar to the company’s initial $50 million estimate.

There might still be a problem with the plan, according to one critic.

“In the context of taxpayer money going to subsidize a stadium, (there) is little or no economic benefit to localities engaging in that type of behavior,” said Chris Koopman, program manager of Project for the Study of American Capitalism for the Mercatus Center at George Mason University.

This plan makes it harder to differentiate what money is for the public good, Koopman said, and what is “public money going to benefit the people that stand to gain from these projects.”

The city still intends to move forward with plans for the arena, but there is not yet a final contract between Virginia Beach and USM.

“We’ve moved past a hurdle,” Smith said. “We think we’ve got a manageable infrastructure. We’ll continue to refine these numbers, we’ll start to refine the fiscal impact size of this, and what those revenues are available to pay for.”

While Smith says the plan is a manageable one, Koopman said other things should be considered.

“What’s going to be the tipping point is finding ways to reform government institutions to ensure politicians don’t have freedom to hand out these types of privileges,” he said.

Andrea Kilmer, CEO at ESG Companies, of which USM is a part, has been in contact with the Chinese company for awhile. She was asked by an official from former Gov. Bob McDonnell’s office to show CMEC around the area a few years ago and help them go through the numbers on a few projects. At the time, Kilmer was on the Economic Development and Jobs Creation Commission.

“At the request of the state, we spoke with CMEC about several potential projects in our area and mutually agreed that the arena would be the most viable and a good fit for our two firms,” Kilmer said in a statement.

The former governor, as well some of his cabinet members, went on two trips to Asia during that period. The Virginia Economic Development Partnership even opened an office in Shanghai in 2011. CMEC was in contact with the Virginia state government for a few years, and the company had representatives visit Virginia Beach a number of times. After Kilmer and another ESG representative visited China again, plans were cemented for the companies to work together on the arena project.

–Kaitlyn Speer is an intern for Watchdog.org, Virginia Bureau. She can be reached at kspeer@watchdog.org or on twitter at @KSpeer11.