MGM Springfield has released new information on project cost increases. But Massachusetts Gaming Commissioner members have more questions.
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Two and a half months after announcing a cost-cutting redesign of its planned casino complex, MGM Springfield has detailed the cost hikes it says led to that decision - numbers that MGM Springfield President Michael Mathis says should put to rest questions of whether the company will meet its legal spending commitments.
But though the figures are the most precise yet released by MGM, members of the Massachusetts Gaming Commission are still not satisfied. At Thursday's hearing, commissioners raised questions about the scale of the cost increases and told the company they wanted more details on how MGM's project budget has ballooned from $800 million to $950 million.
As part of Wednesday's presentation to the commission, MGM broke down its project costs, with some elements showing major changes. Construction costs have jumped from $397.3 to $495.4 million, according to the presentation. Pre-opening expenses and host community costs have increased by about $ 75 million. And fixtures and furnishings costs have dropped from $107.5 million to $74.9 million, due to MGM realizing it could re-use gaming equipment from other properties instead of purchasing it new.
All told, the redesign - which has attracted controversy for its proposed elimination of a 25-story hotel tower and for its reduction in overall floor space - saved the company up to $75 million, Mathis told the commission. The original plan would have cost MGM Springfield between $1 billion and $1.05 billion, he said.
MGM Springfield cost breakdown presented to the Massachusetts Gaming Commission on Dec. 3, 2015.MGM Springfield
"What we did with these efficiencies is we translated a $150 to $175 million overrun to a $100 million overrun," MGM Springfield General Counsel Seth Stratton said.
The new figures also address questions raised by the Boston Globe about whether MGM would meet its legal mandate to spend at least $500 million on capital costs, according to Stratton. In the previous design, those costs were projected to be $536 million - including $31.5 million in operating costs that MGM recategorized as eligible, after initially not counting them in their tally of capital costs.
The new design will include $614 million in capital costs, according to the presentation, including $495 million in building and design costs and $74.9 million in furnishings, fixtures and equipment - both categories which clearly meet the state's benchmarks for capital spending.
"As we've always said the minimum hard cost threshold has never been a concern for us. With these increased construction costs, it's even less of an issue," Mathis said in a Friday interview. "I'd like to push that issue behind us."
But despite that confidence, questions persisted among members of the commission. Commissioner Enrique Zuniga, whose aggressive questioning of why MGM lacked cost details at the commission's September meeting prompted the company to prepare the newly-released figures, said he wanted more specifics about how construction costs spiked.
"I was expecting a little bit more detail to come from you on the area of cost," Zuniga said. "I for one would like to understand those details, especially as we prepare with our consultants and some of the questions they've had."
And Commission Chairman Stephen Crosby - who noted that he largely found the presentation convincing - expressed bemusement about the size of the cost increases, noting that construction spending was projected to increase by 25 percent even as the footprint of the project is reduced by 10 percent.
"The numbers are so big they just don't quite make sense to me," Crosby said.
Crosby also asked MGM to provide more details on the figures. Mathis indicated that the company could provide that information, but may be reluctant to release all of it publicly, saying some of that analysis could be "proprietary."
"You know -- somebody knows -- what changed here," Crosby said. "This is not a huge, massive research project."
In an interview Friday morning, Mathis attributed the spike in construction spending to materials cost inflation and a labor market that has tightened as the project has been delayed by 18 months. A second statewide referendum and the ongoing I-91 viaduct project have caused costs to balloon even given the reductions in the new design, he said.
But while MGM will provide more details on those increases to the commission, they will not be released publicly, Mathis said. Any specific information, based on a detailed market analysis the company conducted in recent months, is propriety - releasing it while bidding for ongoing construction would put the company at a competitive disadvantage, according to Mathis.
"Any more details on that we can't really share, because we're out in the market bidding on things," Mathis said.
Carpenter's Local 108 Business Manager Jason Garand, whose union has negotiated a construction labor contract with MGM Springfield, said that while he had heard of large swings in material prices, he did not anticipate a major jump in labor costs. The union has a contract with MGM through 2016, including 3 percent annual raises, Garand said.
While Garand noted that the construction labor market has heated up in Boston and the Hartford area, he said that Western Massachusetts builders are available and waiting for work.
"Western Mass. is still kind of waiting for these things to happen," Garand said. "If there are price increases that are coming that are going to dramatically change this project, it's not going to come from the labor side,"
The nearly $75 million jump in pre-opening and host-community costs was driven both by delays and an initial miscalculation by the company, Mathis said. The 18-month delay has left the company paying additional debt service and interest on debt it took out to pay up-front project costs, Mathis said.
And MGM Springfield's first estimate did not take into account that the company, along with the state's other operators, is responsible for covering the Massachusetts Gaming Commission's $20 million to $25 million annual operating costs, according to Mathis.
"That's unique to this market. In the other markets that we operate, that's covered by our tax rate," Mathis said. "That was just a miss by us."
The new figures also reflect a more accurate sense of the project's cost, based on a deeper understanding of the Massachusetts construction market than the company had at the beginning of the project, according to Mathis.
"I don't want to suggest that there isn't a little bit of trial and error," he said. "The more people you speak to, the more information and more expertise you are able to get."