The $645 million general obligation bond that helped pay for construction of what was initially called Las Vegas Stadium, and is now the stadium for the former NFL Oakland Raiders organization, and named Allegiant Stadium (after Las Vegas-headquartered Allegiant Airlines), has a bond debt reserve that, under current Pandemic-driven conditions, will be depleted by the end of the 2022 fiscal year.
As it has done with many aspects of the world’s economy, The Pandemic has exposed weaknesses in the bond issue that this space has warned the Southern Nevada Tourism and Infrastructure Committee about (the group formed by now-formed Nevada Governor Brian Sandoval, which laid the legislative groundwork for the development of Las Vegas Stadium), and the Las Vegas Stadium Authority.
A Moment To Highlight Raiders Bond-Related Money Flows
A number of Raiders Fans have asked why this is important. The reason for the importance of this is if Clark County and The Las Vegas Stadium Authority, the owners of Allegiant Stadium, can’t make annual fiscal year payments on the bond issue from the revenue generated by the Hotel Stadium Tax, the debt burden falls to the Clark County General Fund, itself – in other words, to the taxpayers of Clark County.
If that happens, then the cost would push out other service expenditures for schools and other services. In other words, Clark County would have to make service cuts, unless it had a giant reserve to help pay the bond debt. Right now, The Pandemic has caused Clark County’s General Fund to expect a shortfall of an estimated $1 billion to $2 billion by Fiscal Year 2021-2022.
Money and Responsibility Flows In The Matter Of The Las Vegas Stadium Bond Issue, Stadium Hotel Tax Collection For The Bond, Clark County, And The Raiders
To this day, some do not understand that the Las Vegas Raiders do not own Allegiant Stadium, Clark County does, and with the Las Vegas Stadium Authority as representative manager; the Raiders basically serve as “StadCo”, and have oversight responsibility for the construction of the stadium. Here’s the chart introducing the organizational model proposed and funding plan presented by Majestic Realty and Las Vegas Sands and the Oakland Raiders at the August 28th, 2016, Southern Nevada Tourism and Infrastructure Committee Meeting:
For those who have asked, the Raiders, serving as “StadCo”, collected the first two fiscal years of revenue from the Stadium Hotel Tax, or 2017 and 2018, and up to April of 2018, and used that to pay for building the stadium. The reasons for this payment design were to sustain a $750 million subsidy, while reducing the size of the bond issue to $650 million, and thus the annual bond debt payments (the details are explained below). Then starting with the last two months of fiscal year 2018, the bond underwriters who contracted with Clark County and The Las Vegas Stadium Authority, collect the tax revenue and use it to pay the annual bond debt – and will do so for the next 27 years.
Here’s the flow of funds relationship as presented in this chart from the same presentation. Note the $95 million in “pay-go” funds, money collected from the tax before the bond issue was let on April of 2018; tax revenue was collected for two fiscal years, 2017 and 2018, for pay-go, before switching it to Clark County’s bond underwriters to pay for the bond issue.
Zennie Abraham Warnings Of Too Small Hotel Stadium Tax Rate Not Taken Seriously By Some Key Parties In Las Vegas, And Las Vegas Review Journal
My constant warnings were (in 2016 and 2017, and more times) constantly met with laughter and derision, and by some unexpected areas, most notably the Las Vegas Review Journal. But, to repeat, my concerns were expressed as far back as the 2016 SNTIC meetings, as you can see, here:
In 2018, when I was in Las Vegas for CES, I visited the Stadium Authority’s meeting and brought up the matter with Jeremy Aguero of Applied Analysis, the noted local Las Vegas economist, who serves as a key staff members of the Las Vegas Stadium Authority:
But, the claim of “laughter and derision” cannot be said for the Clark County Finance Director, Jessica Colvin, MGM Resorts CEO Bill Hornbuckle, and Guy Hobbs, Founder and Managing Director of Hoobs, Ong & Associates (and the finance adviser to the SNTIC and the Las Vegas Stadium Authority), whom I thank for their professionalism.
Specifically, the low stadium hotel tax rate of .88, or 88/100ths of 1 percent (which I have asserted is that as far back as 2017), combined with the unusually low bond debt coverage ratio of 1.5 to 1, has resulted in not enough money collected for the stadium bond debt. That problem had existed before the The Pandemic, (and became evident shortly after the bonds were issued) but was masked by carryover funds from the “pay-go” period of the collection of the stadium hotel tax.
The Data And The Story Behind It, First
For this presentation table set, I used the revenue data that was provided on the website of the Las Vegas Stadium Authority, and in the meetings information sets that have been provided for public view. However, bond debt, and bond debt coverage ratio costs, were not part of those presentations; the LVSA presented an expense calculation representing its needs – you can’t use those expense estimates to figure out, or “back into” the $11.6 million unscheduled draw down from the bond debt reserve that was determined to be due after the close of the 2020 fiscal year.
To get there, one has to use the actual bond issue document, and the bond debt expense table on page 26 of 276 of it (you can download that here). Then, one has to calculate the bond debt expense with the debt coverage ratio. This is the spreadsheet I built to do that, here.
If you’re wondering what the definition of the debt coverage ratio is, the definition is “a measurement of a firm’s available cash flow to pay current debt obligations.” But in municipal finance, it is also a measure used to design a bond issue. In the case of the Clark County Stadium Bond Issue, the debt coverage ratio decided upon as far back as the SNTIC meetings and at the behest of the financial advisor was 1.5 to 1. This was then, and is now, a controversial decision, because municipal bonds generally have a 2 to 1 debt-coverage ratio. To cut to the chase, it means that less revenue is required to be collected for the same level of bond debt. With all of that, the 1.5 to 1 debt coverage ratio was placed in as law with respect to the stadium bond issue, and is on page 35 of 68 of the Senate Bill One legislation that governs the Raiders Stadium.
(It must be noted that the Las Vegas Convention and Visitors Bureau has historically a much higher debt coverage ratio of 3 to 1.)
What normally should result in a higher interest rate on the Clark County Stadium Bond Issue was countered by the decision to make it a general obligation bond, and not a revenue bond. Why? Because in the event that the bond revenue is so low that it depletes its own reserve, the debt would simply be paid for (or what is called “backstopped”) by the Clark County General Fund, itself.
If the stadium bond issue were done by the Las Vegas Convention and Visitors Bureau, it would be 3 to 1, possibly at a higher tax rate, and thus had vastly more money to deal with not only an economic downturn, but the level of loss caused by the Pandemic, and the American economic and social response to it.
But Las Vegas Sands Founder and President Sheldon Adelson, long an enemy of the Las Vegas Convention and Visitors Bureau largely for political reasons (he did not like public money competing against his privately-financed event venues), did not want it to be the developer of what is now called Allegiant Stadium.
Thus, the SNTIC created the Las Vegas Stadium Authority, while directing Clark County to issue the stadium bonds – thus maintaining the bond issue’s status as a general obligation bond. Now, let’s direct our attention to the table below. It comes from a spreadsheet worksheet I provided for view, and you can access, here. It’s not the actual spreadsheet with formulas, but I am happy to provide that, upon request via email here: [email protected]
What you see, to be efficient in presentation, is straight forward. The bond issue was “let”, April of 2018, but the actual collection of stadium tax revenue and application of it to pay down the bond did was not to happen until fiscal year 2019. The reason for that is born of a genius design installed by financial advisor Guy Hobbs: faced with the Mark Davis and Sheldon Adelson-issued directive that the bond issue was to be $750 million, but up against political fears of what would be the largest subsidy ever provided for an American sports stadium, Hobbs designed a method where revenue from the tax would be collected before the bond issue needed it to pay the bond debt, and for a full two-years.
UPDATE, via email, Guy Hobbs added this:
Remember, too, that the interest earned on the construction proceeds and upon the debt reserves also inures to the benefit of the debt reserves (by design).
Hope that all is well!
And I thank, again, my friend Guy Hobbs. A true professional and a good person.
UPDATE 2, via email, Guy Hobbs added this in response to my query on the dollar amount of the interest earned on the construction proceeds and upon the debt reserves:
Without going back into the accounting records of the County, I don’t have an up to date value. However, it is in the realm of the amount that was drawn against the reserve to make the December debt payment. Clearly, it was not an insignificant sum and it was wise to have the interest accrue to the benefit of the reserve fund. Interest on the reserve fund itself also inures to the reserve fund.
That would be about $11 million. But, as you will learn, the result still places the bond debt reserve in danger of depletion at the end of fiscal year 2022.
Also, it’s important to remember, this is a 30-year bond issue, not five years. So, we have to make sure the long-term fiscal health of the bond issue is good. What happens in fiscal years 2023, 2024, and so on, is concerning. A Federal Government monetary bailout for Clark County, Nevada would render this issue taken care of.
Much of that pay-go stadium tax revenue, as it was called, was eventually turned over to the Las Vegas Raiders, operating in its roll of what was legally referred to as “Stadco”, or “stadium corporation”. That was done on April of 2018, the month the stadium bonds were issued for sale. Because of the two-years of pay-go, the actual bond issue was only $647 million, and not $750 million. That resulted in a lower bond debt – but it was still not low enough for the tax rate.
That’s why, in 2016, the SNTIC initially countered Mark Davis and Sheldon Adelson’s request for a $750 million subsidy, with a $550 million subsidy, but then Raiders President Marc Badain hit the ceiling, and the SNTIC backed off. But the stage was set: the low tax rate was born of political and local casino industry concerns that the tax would be passed on to hotel guests in the form of higher room rates. Sensitive to losing conventions to cities like Chicago, the SNTIC eventually picked the rate of 88/100ths of 1 percent, after starting with 1 percent, and then going as low as 7/10ths of 1 percent, only to determine that rate would be disastrously low.
Meanwhile, the Raiders and Sheldon Adelson insisted on a $750 million subsidy, and not anything less. The pay-go design was a way to achieve that: the combination of the pay-go-revenues and the bond payment period revenues show that the call for a $750 million subsidy was met – but at a cost.
In the table above, we see that the debt coverage ratio forced a bond debt expense that was over revenues by $4.7 million. But that bad situation was saved by the addition of the carryover pay-go-revenue after the bond was issued in April of 2018 – the next two months, May and June, of collections, was applied to the next fiscal year. That $8.1 million, offset the $4.7 million, and produced a (for this purpose rounded) surplus of $3.4 million. That leads us to the table for 2020 fiscal year, below.
The revenue expressed in the column at the left is from the LVSA files. As you can see, the pain from the Pandemic, the lockdown-caused reduction in visitors, was first expressed in March, and then became really bad in April and May – it improved in June, but not substantially. This caused a loss I calculated as $14.23 million, but the carryover from 2019, the $3.385 million, produced the negative $10.9 million. That’s not far off from the $11.6 million that was actually drawn down from the bond debt service reserve, leaving $57.28 million remaining. Now, let’s see how this looks for 2021 – what I will call the first forecast year.
Here, July, August, and September revenues are actual and provided by LVSA files. But, for the rest of 2021, I tested an improved hotel climate, but still problematical for a number of reasons, producing average monthly revenue of $2 million – much as what we saw in March of 2020, when the Pandemic-conditions started to become obvious.
Note that the result produces a net of negative $30 million by the end of the 2021 fiscal year. That cuts into the remaining reserve of $57.2 million, leaving just over $27 million that would be the reserve for 2022. So, let’s look at one conservative forecast for 2022 fiscal year.
Considering that you should know the drill now, look at the revenue column. A $2.2 million per month rate shows better performance, but far off 2019 Las Vegas and Clark County norms. The result is that all but $261,704 of the bond debt service reserve is gone. This points to some other problems.
First, the bond debt service reserve was supposed to be at just over $90 million to start in 2019 but was never supplied with enough money to reach that point. It has been under-funded. Second, while no official reason has been provided, I think it has to do with the too-low-tax-rate not even bringing in enough money during the pay-go period to put in. I will revisit that in another post in the near future.
What’s troubling is that we’re left to wish and hope for better economic performance by 2022, and there’s no guarantee that will happen – but its clear a money problem exists, and has for some time. My suggestion is that the LVSA and Clark County move to apply for the large scale economic disaster aide that the Trump Administration initially said it was going to make available when the President had Mr. Adelson and other representatives of the Las Vegas hospitality industry at the White House earlier this year. Rather than wish for a better future, Clark County has to engineer that better future.
Again, I also remind everyone that the bond issue is for 30-years. In 2023, the bond debt goes up by another million dollars. LVSA is not out of the woods, indeed, its just getting thicker.