City of Davenport

City Administration 226 West Fourth Street – Davenport, 52801 Telephone: 563‐326‐7763 Fax: 563‐326‐7736 www.cityofdavenportiowa.com

December 12, 2012

Mary Ellen Chamberlin Director, Riverboat Development Authority Davenport, IA.

Dear Mary Ellen:

Thank you for sharing the questions of RDA Board Members. I’ve taken the liberty of numbering the questions / comments sequentially, for ease of reference.

As RDA Board Members review the answers, I hope they do so bolstered by answers you have provided regarding the RDA’s role in negotiating an operating agreement. As you recall, City representatives met with RDA representatives several weeks ago, and quickly and amicably reached agreement on all negotiating points.

The City’s leadership in acquiring the Rhythm City casino is conservatively projected to nearly double the amount of revenue the RDA receives, while at the same time transitioning gaming in Davenport to the “Dubuque model”, where all gaming profits from a city owned casino stay within the community. This transformation has the potential to nearly double RDA revenue, as it retains five to fifteen million dollars a year in gaming profits in our community.

The City looks forward to the RDA’s support of this transformation, and I am available at any RDA Board Member’s convenience to answer further questions.

Sincerely,

Craig Malin City Administrator

SUMMARY OF RDA BOARD MEMBER QUESTIONS FOR CITY OF DAVENPORT

GENERAL

1. How long has the City been planning on taking over developing and running a casino?

The City commissioned PFM to model alternatives in early 2012, to understand the full range of alternatives should the MSEG Development Agreement expire in November of 2012. This conceptual modeling has been supplied to the RDA. In completing due diligence for a potential private / public partnership with a gaming company brought to the City by MSEG, it became clear the City could maximize revenue retained in the community by utilizing the approach Polk County and Dubuque have used, while also substantially increasing revenue to the RDA.

2. Time line for the identification of a developer and need for the RDA to enter into Operator’s Agreement.

The time line for identification of an operator and need for the RDA to enter into an Operator’s Agreement are separate matters.

The timeline for identification of an operator is somewhat dependent on responses to the RFP. The RFP allows for developers and developer / operators. While a developer / operator could be the successful respondent, the Dubuque and Polk County models capture the full benefit of retaining gaming profit within the community through creation of a local brand, not through contracting with a national operator. The DCIC has been established to either contract with a national developer / operator (if identified and selected through the RFP) or contract with a general manager, overseeing a local brand.

In any case, moving forward, the RDA agreement is with the DCIC, and should be entered into when all major negotiating points have been agreed to. To the best of the City’s knowledge, this has already occurred, and there is no advantage in delaying approval.

CITY NON-PROFIT

3. How will the non-profit function?

The DCIC will function pursuant to its bylaws, and laws of the State of Iowa, including open records and open meetings laws, as prescribed by Iowa Code.

4. Conflict of interests of City involvement with non-profit and RDA membership on the Board.

If the question is, may there be occasions at which members on overlapping boards may have to recuse themselves from voting due to conflicts of interest, the answer is that will happen from time to time.

5. Advantages and disadvantages of RDA being members of the City non-profit/waiver of conflict.

If the question is, what are the advantages and disadvantages of RDA appointees serving on the DCIC Board, the general advantage is RDA service on the DCIC Board allows for unfettered RDA insight into DCIC governance. As the City has always engaged the RDA as a trusted community partner, there appear to be no disadvantages from a perspective of supporting the RDA’s fiduciary and philanthropic roles. One of the guiding thoughts in establishing the DCIC rather than expanding the RDA, with overlapping City membership on the RDA Board, was to keep the current structure and function of the RDA intact and independent.

Simply put, RDA representatives requested two appointees on the DCIC Board in a discussion with City officials, and City officials agreed to the request. The agreement is founded on shared values in representing shared community interests. It should be noted, the RDA has had no membership on any similar private board overseeing casino operations.

CITY CONTROL OF BOARD

6. Can City remove people from the Board and if so, why, how and what standards?

The bylaws allow the City Council to remove DCIC Board Members which the City Council appoints. Per the bylaws, they can do so “whenever in its judgment the best interests of the Corporation would be served thereby”. As a practical matter, there would need to be a serious dereliction of duty for such removal to occur. Moreover, in the case of RDA appointees and DCIC appointees, the City Council’s ability to remove DCIC members is tempered by the RDA’s (and DCIC’s) ability to appoint Board Members, without City Council action.

7. Clear understanding of role of non-profit.

The DCIC is a corporation established to operate a casino. Its role is set forth explicitly in its bylaws (excerpt below). In sum, the DCIC will be the governing board for the casino. It is being established as a separate, non-profit corporation for a number of practical reasons. City officials have no interest (and no aptitude) in the daily affairs of operating a casino. The City also has no interest in adding 300 – 500 employees to City ranks. The DCIC will operate as a standalone entity, separated from local politics, wholly dedicated to the task of optimizing the market opportunity of a land-based casino. Its role is to maximize the financial value of the gaming license in Davenport. As set forth in the opening to the bylaws, its role is:

“[DCIC] is organized: to engage in the establishment, maintenance and operation of, among other things, gambling games in the State of Iowa in accordance with a license or licenses granted under Chapter 99F of the Iowa Code and with the rules and regulations promulgated by the Iowa Racing and Gaming Commission established thereunder; and to do and perform such acts as may be necessary or appropriate for carrying out the foregoing purposes of the Corporation and to exercise any and all of the powers granted to nonprofit corporations by the Iowa Nonprofit Corporation Act.

The Corporation is not organized for pecuniary profit. No part of the net earnings of the Corporation shall inure to the benefit of any Director or officer of the Corporation, or any private individual, except that the Corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes and objects set forth hereinabove and in the Articles of Incorporation.”

LOCATION

8. Perceived bias for downtown location, why?

The only potential scoring advantage in the RFP for a downtown location is a maximum of four points for “Walkable Access to Existing Attractions”. Four points is approximately 3% of the total maximum score available, and is equally offset by four potential points for “Expansion Capability”, which is to the advantage of greenfield sites. With this balance, there is no structural advantage, or disadvantage, built into the RFP with respect to location.

There are, in concept, advantages and disadvantages of either an Interstate or downtown location. There are also nearly as many perspectives, in concept, on the topic as there are individuals willing to share their perspective. The City’s approach has been to solicit expert opinions, and release a RFP that is open to either the Interstate or downtown.

9. Advantages/disadvantages of downtown.

In concept, a downtown location may leverage existing infrastructure including hotels and parking ramps and existing assets which may be directly connected to a casino including the RiverCenter, Adler Theater and RME. Supplemental assets, including the Figge, Bucktown, Freight House, , downtown businesses and riverfront parks and festivals could provide a destination experience beyond what is readily available on an Interstate. While counter-intuitive for many, there is more traffic downtown than on I-80, with more total travel lanes in and out of downtown than will ever occur on I-80.

The disadvantages of downtown are that the traffic is typically more local in orientation than on I-80, and urban redevelopment is generally more challenging, and space constrained, than greenfield development. Surface parking can be challenging to assemble and design as a positive contributor to urban design and ease of vehicular access, particularly with one ways, can be somewhat confusing for first time visitors.

10. Increased safety issues with downtown location.

There are, in fact, fewer “safety issues” downtown than on I-80. Response times downtown are faster, with greater resources, than response times along the I-80 corridor. If “safety issues” is code for perceptions of public safety, two facts require consideration. The first is the downtown regularly hosts thousands and tens of thousands of visitors, including families and children, without incident whatsoever. Moreover, as owner of the casino, the City will have a direct stake in the public safety perceptions surrounding the facility, and will take all appropriate measures to insure the actual and perceived safety of its patrons, wherever it may be located.

11. Effect upon overall downtown, if Casino is developed.

a. Effect on existing businesses, b. Effect on growth of residential in downtown, c. Crime/safety.

Any detailed analysis is dependent on the final location and design of the casino. In sum, one million visitors a year, with $66 million or more of gross gaming revenue, can only be positive for the downtown. The Downtown Partnership is expected to commission a study regarding the potential benefits of a land-based, downtown casino. The City surveyed development related to downtown and greenfield casinos in the region, and found more “spin-off” development for downtown locations than greenfield locations (attached).

REVENUE STREAM

12. What are the guarantees to the RDA that the new entity or enterprise will be able to perform and make payments?

The guarantee is the same that exists now; the RDA payment is based on “top line” revenue. The difference is the City / DCIC is proposing the RDA receive 5% of gross gaming revenue, rather than 4.1% it receives from the IOC.

13. In the Dubuque model, what is the difference in profitability between the privately owned casino and the publicly owned casino?

An exact answer cannot be supplied, as the two casinos operate under different corporate reporting models. What is known is the (publicly owned) Mystique casino generates five times as much revenue for the community as the (privately owned) Diamond Jo casino.

14. Cummings reports seems to predict income reduction in second year of land base. How will that affect RDA’s income?

The Cummings report is a model, and the second year “dip” would occur in the model whether operated by a private operator or DCIC. Please note the proposed DCIC / RDA agreement includes a guaranteed minimum payment, and an increase from 4.1% of gross gaming revenue to 4.5% in the second year of a land-based casino.

15. Have the effects of video gambling, changes to the gaming scene, Quad City Downs, and the expected land base of the Bettendorf IOC operation been adequately taken into consideration with the projections for a future land based operation in Davenport? (Downtown and I-80)

The Cummings report conservatively projects the Isle of Capri casino in Bettendorf will be land-based in advance of a casino in Davenport (page 7 and 11). Whether this comes to fruition, or the reverse occurs (with Davenport transitioning to land before Bettendorf) is dependent upon future decisions. With regard to the effects of video gaming and other changes in Illinois, PFM and the City have utilized more conservative estimates of gross gaming revenue than those in the 2010 Cummings report. For the purposes of projecting RDA revenue, the City used a range of $66 million to $77 million of gross gaming revenue. Even with these conservative projections, the proposed DCIC / RDA agreement nearly doubles revenue the RDA will receive, from $2,070,500 to $3,850,000.

The most pertinent financial issues for the RDA are whether (and when) a casino operator will move onto land and whether (or not) the operator will increase the percentage of gross gaming revenue beyond that required by law. With years of experience to the contrary through private ownership of the casino, the City is now proposing to both move the casino onto land and increase the RDA’s percentage of gross gaming revenue. The City is proposing to nearly double the amount of revenue the RDA will receive, as the DCIC guarantees a minimum payment and offers two seats on the DCIC board.

The City is able to achieve this transition as it has unique capabilities, including access to capital at rates substantially below private sector operators. At the most recent IRGC meeting, one prospective operator referenced capital costs of 14%, while the most recent City bond issue had an interest rate of less than 3%. Respectfully, the notion that the RDA may achieve a better outcome with a private sector operator is just not consistent with financial realities.

The typical private operator negotiation includes efforts to extract a portion of the RDA proceeds for the benefit of the casino project. Prior agreements of the RDA include such “set asides” for public improvements related to casino improvements. In this case, the City has made no such request. Indeed, as early as the first conceptual models undertaken by the City, we have both consistently employed conservative assumptions in our modeling and have modeled RDA contributions at levels significantly above those required by law, or common to private sector casino operators.

The City views the RDA as a long standing, trusted community partner, and is proposing investments that will nearly double RDA revenue.

CURRENT EMPLOYEES

16. If the casino employees are not employed by the City, who will they be employed by and how will they be compensated?

Except in the instance of a developer / operator, casino employees will be employed by the DCIC. They will be compensated in accord with State law and market conditions.

17. Is it good or bad to give a preference to existing employees, considering that the present operation does not live up to expectations?

The City has committed, through the term sheet, to offer employment to existing Rhythm City employees. This is a positive undertaking, providing reasonable assurance to existing employees that their continued good performance will result in continued employment. The City and DCIC anticipate significant institutional knowledge and customer relations benefits to continuing employment of existing Rhythm City employees. Lastly, it is a significant error to assign responsibility for lack of investment in the enterprise to employees.

ULTIMATE DEVELOPMENT

18. Where will it be?

To be determined. On land, in a better, more competitive place than it is now.

19. How much total money will the City actually invest?

To be determined. The City has adequate resources to accomplish the acquisition, and move onto land, under a wide range of scenarios.

20. What will it look like?

To be determined. Substantially better than it does now, and market competitive under any scenario.

21. Who will be the partners involved?

To be determined, under the existing City / DCIC framework.

22. Who will actually manage and operate casino?

As previously explained, the DCIC will oversee casino operations.

IRGC

23. How does the IRGC perceive City ownership of the casino?

The IRGC has not expressed a definitive opinion as yet, nor are they inclined to do so until the final land-based development is put before them. The IRGC has long expressed concern with the lack of land-based gaming in Scott County and understands how the City of Davenport’s leadership may improve the situation. The IRGC has long permitted two publicly owned casinos to operate in Iowa, and there is nothing in Iowa law that precludes Davenport from acquiring a casino. Individual IRGC Commissioners have expressed concern that the casino not be controlled by the City. The City shares this concern and has structured the DCIC to not be controlled by the City.

24. Has the IRGC expressed an interest in an I-80 casino vs Downtown Davenport casino?

The IRGC has not expressed an official opinion on location. IRGC staff did recommend the City hire Cummings Associates, which modeled both downtown and Interstate locations, to no specific conclusion.

25. What actually happened at the November IRGC meeting?

The Isle of Capri reported that they and the City had agreed to a term sheet and would be negotiating a definitive purchase agreement. There were no questions from the IRGC.

MISCELLANEOUS

26. Will the Citizens of Davenport ever get an opportunity to vote on the issue or to have input into how any proceeds might be spent?

Like all cities, except for those in New England structured as “town meeting” cities, Davenport is a representative democracy. Citizens elect representatives, and those representatives make decisions. Davenport is blessed with roughly twice the amount of electoral activity as most cities, given our two year Council terms. Thus, while there is no procedure for Davenport citizens to vote on annual budgets, there has and will be ample opportunity for citizens to share their views through advice, and directly through future ballots.

With full appreciation for the citizen volunteers on the RDA Board, Davenport City Council members are directly responsible to the Davenport citizenry.

27. In the event there are no satisfactory RFP responses, the City seems to indicate that it will build a land-based casino anyway, where will it be, how will it be financed and how will it be operated and run?

As the entity exercising the leadership necessary to move gaming onto land in Davenport, the City Council will ultimately determine where a land-based facility may be located, pending final transaction approval by the IRGC. The City has options both downtown and with Interstate visibility and access, all of which are within the City’s existing financial capacity. Pending submittal of responses to the RFP, representatives from the City Council, DCIC and RDA will be engaged in review of proposals and will be able to compare competing proposals, including those which may be undertaken by the City. Ultimately, the City Council will choose the optimal proposal to advance forward to the IRGC. In all foreseeable circumstances, the casino will be operated and run under the oversight of the DCIC.

28. If there are no satisfactory RFP’s, would the City consider calling the deal off and working with the IOC towards improving the present operation and moving on land?

While anything is possible, “calling the deal off” due to lack of “satisfactory” proposals is highly unlikely, unnecessary and counter-productive. Recalling the answer to question #1, the City has committed a significant amount of due diligence to this effort, including thinking through how to move forward with a land-based conversion under the full range of scenarios (question #27).

The IOC and City have agreed to a term sheet and are in process of negotiating a definitive purchase agreement. In doing so, the City (and IOC) have advanced the effort to bring land-based gaming to Scott County to the point where RDA and IRGC approvals are necessary to move forward. As previously outlined (see answer #15, in particular) there are clear and compelling reasons why the RDA should approve the DCIC / RDA agreement. The IRGC has a similarly compelling motivation, if they would like to move two riverboat casinos onto land in Eastern Iowa and stop the market share decline the land-based Jumers casino in Illinois has caused.

The City is providing leadership in the shared interests of the Davenport community, RDA and IRGC. “Calling off” this exercise of leadership and reverting to the status quo of riverboats and minimum payments could only hurt the RDA. If an RDA Board Member is satisfied with $2 million a year when they could have $3.8 million a year, they should vote no on the RDA / DCIC agreement. Similarly, if they would like to continue to see $5 million to $15 million a year in gaming profits leave the Davenport community, they should also vote no. Board Members who would like to increase revenue to the RDA, and retain millions a year in gaming profits within the community, as the community of Dubuque has successfully accomplished for years, should vote yes.

29. Has the City adequately considered the cost to replace and upgrade existing equipment, when going land based or if the City purchases the casino and maintains it in its present location, has the City adequately considered what it would cost to upgrade the present operation to make it competitive, pending land base?

The modeling prepared by PFM includes customary facility and equipment enhancements to remain market competitive. The City well understands the need to remain competitive in the marketplace.

30. Does the City intend to shift sewer bonds from general obligation to revenue? What would be the impact on sewer fees?

The City currently includes sewer bonds within its general obligation debt, with sewer fees as the source of bond payments. Like many other cities, Davenport could lower its general obligation debt by issuing revenue bonds, with the same sewer fees as the source of bond payments. The City has no critical need to do so under any foreseeable casino scenario, and may or may not choose to do so in the future. If the City does choose to use revenue bonds for sewer projects, sewer fees will not be increased.

end of questions ASSESSED ADDRESS YEAR BUILT VALUE NOTES DUBUQUE - MYSTIQUE 11/95 Hilton Garden Inn & Houlihan's Restaurant 1801 Greyhound Road 2005$ 5,044,000 $7.1M est. construction Mystique Community Ice Center 1800 Admiral Sheehy 2010 costs/City of Dubuque

Dubuque Yacht Basin 1630 E 16th Street 1995 (1965)$ 1,015,920 Restaurant was built in 1995

DUBUQUE - DIAMOND JO 12/98 Grand Harbor Hotel and Waterpark 350 Bell Street 2002$ 11,588,880 National Museum 350 East 3rd Street 2003$ 4,505,850 City of Dubuque Grand River Center 500 Bell Street 2003$ 13,184,000 City of Dubuque Star Brewery Building (Resturant, Winery, & Office Space) 600 Star Brewery Drive 2007$ 4,709,100 City of Dubuque

Hotel Julien 200 Main 2009$ 8,674,760 $30M+ est. renovation costs

$23M estimated construction Port of Dubuque Parking Ramp Bell Street 2008$ 18,341,680 costs/City of Dubuque Durrant Group Corporate Headquarters 400 Ice Harbor Drive 2008$ 2,002,210 $3.7M est. renovation costs $32M estimated construction McGraw Hill Companies 501 Bell Street 2007$ 14,729,210 costs $12M estimated construction Flexsteel 385 Bell Street 2012$ - costs Chamber of Commerce 300 Main Street #1 2001$ 958,190 300 Main LLC 300 Main Street #2 2001$ 650,350 DAIDC 300 Main Street #3 2001$ 153,920 Prudential Financial 500 Main Street 2000$ 10,146,550 McDonald's 620 Iowa 2007$ 862,200

Other (DIAMOND JO RELATED): City of Dubuque - Part of Riverwalk $400M America's River Proj River's Edge Plaza (Pavillion) " Alliant Energy Amphitheater "

BETTENDORF - ISLE OF CAPRI 4/95 Isle of Capri Hotels 1850 Isle Parkway 1998 & 2006$ 85,002,320 City of Bettendorf - $20M est. QC Waterfront Convention Center 2021 State Street 2009 construction costs River's Edge Stripmall 1725-1805 State Street 2005$ 4,755,640 Hardees 1930 State Street 2008$ 739,020 QC Area Realtors 1900 State 2005$ 1,580,450

ROCK ISLAND - JUMER'S 12/2008 No related development

RIVERSIDE - 68 units assessed from Walnut Towers Apartments/Condos 1092 Walnut Avenue 2007 $110K to $300K