When executives at MGM Resorts International removed a 25-story hotel tower from their plans for a casino complex in Springfield, they ran the risk of alienating the city residents who were hoping for a skyline-changing landmark.
But they also risked something else: falling below a state mandate for total construction spending.
The state’s 2011 casino law requires that resort casino developers commit to at least $500 million of eligible capital investments, such as for constructing buildings and for furnishings. MGM’s latest report, made in September to the Massachusetts Gaming Commission, showed the company was pledging to invest $537 million.
That total, however, included roughly $30 million for the construction of 54 apartments that MGM has since removed from the complex. MGM now plans to build significantly less expensive apartments off-site and no longer count the housing construction toward the threshold.
The figure also included $31.5 million for operating supplies that MGM had previously listed as separate from counting toward the benchmark.
The margin for error is nowhere near as thin for the other resort casino developer that has been approved in the state. Of the $1.7 billion that Wynn Resorts plans to spend for its Everett casino project, about $1.2 billion qualifies toward the state’s minimum.
MGM is drawing up a new budget for its casino project that it expects to present to the Gaming Commission and to Springfield officials in coming weeks, following its decision to reduce the project size by nearly 123,000 square feet, or 14 percent, to 759,000 square feet over two city blocks.
The hotel would have the same number of rooms, 250, but shrink in height from 25 stories to six.
MGM officials say the estimated number of jobs the casino would provide, about 3,000, won’t change.
Representatives of MGM said that when the number-crunching is done, the company’s project budget will remain above the $500 million benchmark.
“We will not need any relief from that threshold,” Michael Mathis, president of MGM Springfield, said at a news conference held last week to address the design changes. “We’re totally comfortable with that threshold.”
MGM had categorized its $31.5 million of “operating supplies” as an ineligible costs in a letter to the Gaming Commission in June. But the Nevada company shifted that figure — a category that includes everything from surveillance equipment to TVs to silverware — into the column of expenses that would be eligible toward the $500 million in its September letter.
MGM spokeswoman Carole Brennan said that between submissions of the two reports, MGM came to a better understanding of what was included in that category and realized the “operating supplies” line item had previously been mischaracterized. The commission has not yet discussed whether MGM can count those expenditures.
James McHugh, one of the state’s five gaming commissioners, said he’s not worried about MGM’s capital spending. The commissioners also want MGM’s total investment to remain above $800 million, a figure that also includes nonconstruction costs, such as the casino license fee and land purchases. Last week, MGM officials again pledged to exceed that number, as spelled out in their original agreement with the City of Springfield, despite the latest changes.
If the projected construction costs decline below $500 million, McHugh said, the commission can require that MGM ensures that threshold is hit. The commission still needs to approve the major design changes MGM is proposing.
“I have a high degree of confidence that they’re not going to fall below the $500 million,” McHugh said. “We’re going to be diligent about it. We’re going to make sure they adhere to it, but I don’t think we’re going to have problems.”
The president of the Springfield City Council, Michael Fenton, said he was disappointed MGM eliminated the tower; it would have been the first big change in Springfield’s skyline in three decades. Now, Fenton said, he’s focused on persuading MGM to offer concessions, as adding residential condos, in return.
“The tower was part of what we were promised in the host-community agreement,” Fenton said. “If it’s going to be eliminated, then the city needs to get compensated for that in some way.”
Paul DeBole, a political science professor at Lasell College in Newton, said he doubts MGM will have any problem surpassing the $500 million threshold. Price tags for big construction projects generally only head in one direction: up. And MGM’s current projected spendingdoes not reflect the fact the project is a year and a half behind the original schedule and not scheduled to open until September 2018, potentially adding to the costs because of inflation.
“Once you open up the ground and find the myriad of problems there . . . they’re going to be well over the $500 million without the tower,” DeBole said.