The problem this blogger has said has existed since even before the Nevada Legislature approved the Oakland Raiders Las Vegas NFL Stadium Project on October 14th of 2016 has been officially recognized by at least one municipal investment banker.
As explained on the Monday night, August 20th 2018 Zennie62 on YouTube Livestream Show, a municipal investment banker admitted that the $650 million bonds issued would be ultimately paid for by the “Las Vegas taxpayer”, and because the stadium tax rate was not large enough to raise money to cover the monthly bond debt.
The municipal investment banker friend of mine has been in the business for about two decades, and did not want his name or company name mentioned here. As I stated on Monday, he finally took a look at my analysis, and texted back this message: “The article was post sale. Also, the bds are a ltgo. So, any shortfall will be covered by property taxes. Not the general fund. Not to say this isn’t a bad deal. Most publicly financed stadiums are. But, if this deal goes belly up. Home owners in lv on the hook for it. ”
To which I replied back via text…”Which is exactly my point. Jessica Colvin, Clark County Finance Director, SPECIFICALLY TOLD me that would not happen, on the record, and as a reaction to my assertion it would. Because that is the political issue in Nevada. The stadium tax revenue is not covering the bond debt and it will not. This comes as the Clark County School District laid off 500 people as a result of two $60 million deficits. So the next step is to keep your name out of this. And report the problem.”
He texted back “Nice. Just keep me/firm out of it.“
In other words, contrary to the claims of Clark County Officials, the stadium tax revenue was not great enough nor was in going to be large enough to pay the bond debt when the debt coverage ratio of 1.5 is multiplied times the bond debt itself. And in that, the normal debt coverage ratio for a municipal bond of the type that was created to pay for part of the construction of Las Vegas Stadium is generally 2 (or 2 to 1), and not 1.5 to 1.
Steven Rice writes “A debt service coverage ratio of less than 2 to 1 may indicate that the municipality may have problems meeting its debt obligations,” in “What You Should Know About Revenue Bonds For The Series 7 Exam.”
The fact is, the stadium hotel tax revenue, which has actually shrank by two percent over a 12 month period, is also too small to produce a base of money that can pay for the $650 million bond issue, with its monthly debt coverage ratio. But it’s OK – Clark County Taxpayers will foot the bill, contrary to what they were told.
The problem, again, is simple: the average monthly revenue from the stadium tax is smaller than the average monthly bond debt when the debt coverage ratio of 1.5 is applied to the bond debt. This spreadsheet table that you can open here using this link, compares the two.
To read the table correctly, we start on the left with the actual bond debt numbers right from the Clark County Stadium Bond Issue Publication you can download here and the bond debt table called “Debt Service Requirements” is on page 26. Then we take that annual bond debt and multiply it by 1.5 to get us the second column on the left – that’s the total bond debt we need to “cover” or pay for with stadium tax revenue.
The third column from the left is the actual annual average stadium tax revenue of (at this time) $48,679,860. The fourth column is what we get when the third column, which is our average annual stadium tax revenue, is subtracted from the second column, which is our total bond debt.
If the third column number of $48,679,860 was greater than the second column number at any time starting with the first line that represents 2019, the fourth column number would be black, to indicate a surplus; as you can see, it’s red, to show a deficit. Moreover, the fourth column deficit number just gets larger each year.
The fifth column of numbers shows what the average monthly stadium tax revenue has to be just to break even for that year. If you check the real average monthly stadium tax revenue, which was $4,056,655, you can see that at no point does it ever reach or exceed the average needed each month to meet bond debt coverage requirements.
In other words, the stadium tax can’t pay for the bond debt stream.
If you increased the $48,679,860 of average annual stadium hotel tax revenue at an annual two percent rate, it would still not produce an amount that would cover the total annual bond debt over the 30 year period. The constant shortfalls would add up to over $84 million by the 30th year. So, how much would it have to grow by? Changing the growth multiplier from 2 to 4 still produced tiny defiicit; changing it from 2 to 5 produced a surplus.
In other words, the average annual stadium hotel tax revenue would have to jump five percent in one year just to insure that there was enough money to cover the bond debt. This points to another problem.
Because Las Vegas and Clark County visitors numbers have fallen 11 of the last 12 months to date, the average monthly stadium hotel tax revenue has fallen by 36 percent of one percent each month or a total of negative 4.37 percent over the first 12 months of collection of the money!
And the problem of Las Vegas falling visitation rates is now a cause of civic business alarm. The main dynamic economic actions behind the decline in visitors is the very change in the American economy such that now there’s at least one casino within an hour’s drive of 90 percent of the United States Population:
Ninety percent of American population now lives within an hour of a casino. Expect to hear more about commoditization, despite it being difficult to say five times fast. (chart via @CreditSuisse) pic.twitter.com/0cuxL8LVgm
— Vital Vegas (@VitalVegas) August 22, 2018
In response, Las Vegas Hotels are in many cases literally giving rooms away, according to the Twitter account of the great blog Vital Vegas:
Room price nosedive continues. MGM Resorts sending offers of $19 at Excalibur, Park MGM $20, Mandalay Bay $33, MGM Grand $40.
— Vital Vegas (@VitalVegas) August 22, 2018
We see this sentiment expressed dozens of times a day, sometimes hundreds. Vegas has a value perception problem in addition to the issue of commoditization, with casino expansion across the country. (cc: @LVCVA) https://t.co/6bdfhetv79
— Vital Vegas (@VitalVegas) August 22, 2018
So, because of the Las Vegas Visit Decline Problem, the average monthly stadium hotel tax revenue has fallen, not increased, since Clark County started collecting it and that’s due to Las Vegas declining visitor rates. The best solution is to increase the stadium tax rate to the 1 percent that was originally pegged by the stadium consultants, but to do that would require sending the whole Southern Nevada Tourism and Investment Act back to the Nevada Legislature – something the Las Vegas Stadium Authority seems afraid to do.
I asked Jeremy Aquero of Applied Analysis, and of the staff to the Las Vegas Stadium Authority about that and he said the tax rate of 88 100ths of 1 percent “is what it is”, and did not see any desire to change it on the part of the Las Vegas Stadium Authority.
Now, the money that was collected from the stadium hotel tax starting in March of 2017 and before the bonds debt is due starting in 2019 is to go directly to the Oakland Raiders for use in paying for stadium construction – it’s not “bankable.” So, the Stadium Authority can’t claim that’s available to cover bond debt shortfalls.
But, as my investment banker friend says, it’s a general obligation bond, and so the Las Vegas Property Taxpayers will make up the difference – like it or not.
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