Las Vegas Stadium News – The Las Vegas Stadium Authority’s September Budget Report was released over the weekend and ahead of Monday’s September 16th 2019 Las Vegas Stadium Authority Meeting to review the progress of the Oakland Raiders and University of Nevada Las Vegas’ new stadium under construction. What the report shows is the unfortunate, but not surprising growth of a budget deficit problem that first appeared four months ago, and has only worsened since.
In the May 2019 Stadium Authority Budget Report the deficit posted was -$241,669. There was no mention of how to close the shortfall before it became a larger problem. And before that report, the previous news had the Las Vegas Stadium Authority difference between budgeted revenues and actual revenues at just $59,113.
So, it wasn’t hard to see the overall LVSA budget path was heading in the wrong direction.
Now, the Las Vegas Stadium Authority Budget deficit is much worse. The new report shows that it’s now at -$472,824. And a deeper dive into the numbers reveals that while stadium hotel tax revenue is up over the previous year’s month by 6.1 percent, thus far, for the entire life of the project, it’s only greater by 1.9 percent.
What’s the problem? The Las Vegas Stadium problem is two fold: the Las Vegas visitation rate problem and the low stadium tax rate of 88-100ths of one percent, or .088. A tax rate problem this blogger warned the same Las Vegas Stadium Authority, and the public, over two years ago, April 15th 2017.
The chart above shows how dramatically the rolling average Las Vegas Stadium Hotel Tax Revenue fell, right from the start of reported collection work, March 2017. That March 2017 was the highest level of monthly revenue taken in, to date, and the only time the $5 million in one month mark was reached.
In my blog Zennie62.com (Zennie62blog.com), and in post with the title “Clark County Hotel Tax Revenue For Las Vegas Oakland Raiders NFL Stadium Can’t Cover $750 million Subsidy” and dated April 15th 2017, I wrote a detailed account of the problem. It’s worth reposting here at Oakland News Now, as no other media outlet has dared to tackle the issue, mainly because 1) they don’t understand it, or 2) are told by some Nevada politicians and business types not to mention it, or 3) don’t want the public to know, or 4) some combination of 1, 2, and 3. Add to that some level of racism toward this vlogger / blogger, and you get the current situation of the unreporting of this problem. So, here’s the details, as I wrote them, April 15th, 2017.
An Aside For A Moment
On that note , I have to report my displeasure with the actions of News3 Las Vegas’ Steve Woford and Rick Velotta of the Las Vegas Review Journal. Both were ready to report that I was responsible for news on the Las Vegas Stadium Steel issue that, at the end of the day, came from another source, and was confirmed by the Stadium Authority, but had no beginning with me. Velotta was too quick to retweet Steve’s tweet, and Steve wrote to me that it was “all in fun” which he forgets was designed by 872 Laborers Union Rep Tommy White to come at my expense.
By contrast, I have treated Mr. White and Mr. Velotta with respect. I even proudly accepted a Raiders Stadium Construction Pin from Mr. White during my visit to Las Vegas for CES 2018.
For me this is a professional job – nothing personal:
My pointing out the problems with the stadium should logically lead to one question: shouldn’t we adopt the solutions Mr. Abraham suggests? What would be wrong with that? The Las Vegas Stadium Project would be improved.
Clark County Hotel Tax Revenue For Las Vegas Oakland Raiders NFL Stadium Can’t Cover $750 million Subsidy
That top headline is a form of being too kind: the fact is that, at current collection rates according to the budget report issued by the Las Vegas Stadium Authority (or LVSA, though some call it the Clark County Stadium Authority), projecting out 30 years, there’s not enough money to cover the debt service on a bond issue that would back the $750 million public subsidy.
The LVSA reported that for this year to fiscal year end 6-30-2017, there is a projected revenue of $14,800,000, or $14.8 million. Since the tax increase collection activity started March 1st of this year 2017, we can use that as the basis for our projection, so here goes: that $14,800,000 to 6-30-2017 breaks down to March, April, May, and June that money from the stadium hotel tax was gathered, or about four full months. Now, we have to take $1 million out of that to pay for the LVSA, which brings our total down to $13,800,000, or $13.8 million.
The question is, what does that $13.8 million give us on a per month basis? That is arrived at by taking $13.8 million and divding it by the current total number of months of collection, or four months, – that comes to $3,450,000, or $3.45 million. In other words, at this point in time, the average stadium revenue collected per month is $3.45 million. But what is that over a period of a year? In other words, what can we possibly expect for the next fiscal year?
The answer to that is to take $3.45 million times 12 months, or $41,400,000 projected for the next fiscal year to 6-30-2018.
Now, here’s where the LVSA budget presented here gets confusing for the general reader, and where the Las Vegas Sun, who first reported on the budget totally missed what was in everyone’s face. The LV Sun only paid attention to the famous (to me) $49.9 million – but the heading for that number in the LVSA reads “tentative approved”, not “estimated current year ending” – in other words, the $49.9 million is what the LVSA wants to give for the stadium bond issue, but it’s not what is has to give for the stadium bond issue. Got that?
The Las Vegas Sun never reported the actual number of $13.8 million, just the $49.9 million. The reporter wrote that the $49.9 million was “projected to be collected in fiscal year 2018” – nothing could be futher from the truth, and a little journalist math like what you see here by this vlogger would have shown that. The truth is, the total stadium hotel tax revenue number for fiscal year 2018 and based on what has been collected to date is $41,400,000, which is way short of $49.9 million – or by $7.6 million. But that’s only the start of the problem.
The $49.9 million is really $50 million, and that number has been with us going back to the SNTIC hearings, where the consultants to the committee proposed that Clark County could contribute $50 million annually for a stadium bond issue. But remember, the stadium bond issue is not just the $750 million, it’s the interest payments too – in other words, the total annual debt service. But what is that?
The SNTIC documents did not show a possible bond amortization schedule, so to determine this, I went to a Google search for “municipal bond payment calculator” and found the “Debt Service Calculator” or the Massachusetts Government Debt Service Spreadsheet, downloaded it, and used it – the sheet is placed at the bottom of this post and is on Scribd, too via this link.
I assumed a 30 year serial municipal bond issue at an interest rate of 4 percent and for $750 million – that’s in line with the type of financing that has been proposed to date. Using the “Debt Service Calculator” produced an annual level debt service of $43,372,574 and a total debt service of $1,301,177,231.
Thus, with a total of $41,400,000 in projected Las Vegas stadium hotel tax revenue, the LVSA is short of the calculated debt service by $1,972,574 per year. In other words, at the current rate of stadium hotel tax revenue collection, the LVSA can’t afford a $750 million public subsidy. But even then, there’s a larger problem: the debt coverage ratio.
The Las Vegas Stadium bond debt coverage ratio is supposed to cover the bond principle and interest. If we use just the $750 million and multiply that times 1.5, we get $1.125 billion. But if we include both bond principle and interest, as the industry calls for, we get, first, the total debt service of $1,301,177,231, and then that times 1.5 comes to $1,951,765,846 in total stadium hotel tax revenue needed to cover a bond issue of $750 million – if we up the debt coverage ratio to 2, then it’s $2,602,354,462 in total stadium hotel tax revenue needed to cover a bond issue of $750 million, assuming 30 years at 4 percent using level debt service calculation as a basis.
But here’s the thing: if we assumed level principal as a basis, that drops the total from $1,301,177,231 to $1,215,000,000 – but according to the “Debt Service Calculator”, the level principal starts out at $55 million for year one, and then goes down annually to $26 million by year 30. It is not until the 16th year of payments that the cost drops below our $41.4 million mark arrived at based on what’s actually being collected in stadium hotel tax revenue. The average annual payment of $40,500,000 under the level principal option is just a razor-thin $900,000 less than the $41.4 million the LVSA is projected to collect yearly, or about 2.17 percent of the total!
Even with that, the overall problem of the Las Vegas Stadium bond issue debt coverage ratio is still with us. Basically, we are looking at scenarios where the Clark County General Fund will be tapped into to help with the problem, if this is allowed to go forward as is. The stadium hotel tax increase that is now Nevada law is not large enough to effectively service bond debt without Clark County’s General Fund being tapped into. This points to a concern that was raised by Las Vegas Mayor Carolyn Goodman and her staff and in a letter to the SNTIC dated September 12th 2016.
In the letter, Mayor Goodman wrote:
“As discussed by the committee,participation via the hotel tax is critical. At this point all cost estimates have been developed by the stadium development team without any confirmation by independent third-parly representatives of the committee. As constructed, the current deal structure could result in a project whereby the development team’s participation is reduced drastically but keeping the public hotel tax contribution at $750 million.
The GO backstonping of bond debt under the presented funding scenario carries significant risk going forward. The assumptions are built on variable, increasing annual debt payments and 2o/o appreciation of the hotel tax revenue base. One only needs to look back at the last 15 years of hotel tax performance to see two instances where there were significant drops in hotel tax performance, one immediately after 9-lI and the other during the recent great recession.
Greater protections need to be built into the deal to reduce the likelihood of exercising the GO backing, thereby putting burden on general taxpayers. We suggest including a revenue bond option in addition to GO backing.”
The revenue bond option Mayor Goodman wanted would have called for a higher debt coverage ratio of two – the Las Vegas Convention and Visitors Authority uses three. But even with that, basing the total debt coverage need on just the $750 million and not the total of debt service payments in a bond amortization schedule would still produce the problem we have: Clark County’s General Fund is going to be used unless this stadium hotel tax plan is altered or terminated.
How we got here.
The fiscal heart of the Las Vegas Oakland Raiders Stadium deal is the much-discussed $750 million bond issue that’s part of the Nevada legislation called the Southern Nevada Tourism and Infrastructure Act, or SNTIA.
The SNTIA, in turn, was based on the meetings and work of the Southern Nevada Tourism and Infrastructure Committee (SNTIC) that was formed by Nevada Governor Brian Sandoval. On April 28th of 2016, Oakland Raiders Owner Mark Davis appeared before the SNTIC, and expressed his desire to move to Las Vegas if the committee and the Nevada Legislature would approve a $750 million public subsidy. To make a long story short, both did.
Along the way there were questions regarding the low bond debt coverage ratio of 1.5 to 1 – a problem raised by this blogger initially. Still, the Nevada Legislature passed the SNTIA and with it a 88 100ths of 1 percent increase in the Clark County Hotel Tax, and the provision for the $750 million public subsidy.
Prior to that October 16th 2016 date, the Nevada Legislature, and the SNTIC before it, were not presented with a full look at the proposed tax increase’s ability to produce money to cover the proposed bond issue. Much of that truth has to do with how the $750 million number was arrived at: well, it wasn’t – it was a number literally picked out of the air by Oakland Raiders Owner Mark Davis, and Las Vegas Sands Founder and CEO Sheldon Adelson.
At first, the SNTIC consultants and committee chairman Steve Hill concluded that a subsidy of $550 million was more realistic than the $750 million the Raiders and Las Vegas Sands wanted. But The Raiders threatened to walk away from the SNTIC entirely, as Raiders President Marc Badain said that subsidy was “unacceptable.”
So, the SNTIC consultants, most likely bowing to political pressure from the Governor of Nevada, worked to create a numbers presentation that would sell the idea that the $750 million mark was achievable, and then pray that no intense scrutiny was offered. (While breaking down the debt service charts provided by the SNTIC consultants, I calculated that the only way they could realize the low monthly debt payments due from the planned bond issue, was to use a bond interest rate of two percent. Now, it’s at 3.15 for a 30-year AA rated municipal bond, like the series of bonds that may come out of the planning period for the instruments.)
Absent the intense analysis and with Las Vegas Sands political muscle, the deal passed the Nevada Legislature.
And now, it’s in trouble. The LVSA has two basic choices: ignore this, and let reality play out and see Clark County’s General Fund used to fund the Raiders stadium while the Nevada electorate screams, or fix this now, and avoid that outcome.
The Stadium Tax Rate Should Be 1.4 Percent, As Stated At Zennie62 YouTube April 16th 2017
It’s not as if I did not share how to fix the problem; I called for an increase in the Stadium Tax Rate to 1.4 percent:
And then I continued to report on the Las Vegas Stadium Authority’s then-attempt to not address the problem, and repeated my call for a 1.4 percent rate:
And in November of 2017, I showed in video-blog form what the problem of the deficient stadium hotel tax looked like and show it impacted the Clark County’s ability to pay the $750 million bond issue debt service considering the 1.5 to 1 debt coverage ratio that has to be added:
And many seem to forget that Nevada Senate Bill One, the enabling legislation for the Oakland Raiders Las Vegas Stadium, and the result of the work of the Southern Nevada Tourism and Infrastructure Committee (SNTIC), the group created by Nevada Governor Brian Sandoval, called for the consideration of the debt coverage ratio. In other words, it’s the law (http://www.lvstadiumauthority.com/docs/Senate%20Bill%201%20(as%20enacted).pdf):
1. The Board of Directors shall request that the Board of County Commissioners issue general obligations of the County pursuant to subsection 2 if the Board of Directors determines that:
(a) The Stadium Authority has entered into a development agreement and a lease agreement pursuant to subsections 2 and 3 of section 29 of this act or a combined development and lease agreement pursuant to subsection 4 of section 29 of this act.
(b) The proceeds of the tax imposed pursuant to subsection 1 of section 33 of this act that will be pledged to the payment of the general obligations will generate sufficient revenue to meet or exceed the debt service coverage ratio of 1.5 times the anticipated annual debt service for each year of the term of the obligations.
And now, here we are with the Las Vegas Stadium Authority budget deficit problem. It must be added that the original account from April 15th 2017, did not present what was later reveled to be the other big problem: the fall in the overall number of visitors to Las Vegas.
To make this simple, overall visitor volume to Las Vegas has fallen each year since 2016, and according to figures from the Las Vegas Convention and Visitors Authority. In 2016, total visitor count was at 42,936,100, then in 2017 it fell to 42,214,200, and then in 2018 the number dropped yet again to 42,116,800.
Overall, Las Vegas visitor volume fell by 819,300 people over that 2016 to 2018 period. And that happened as convention attendance increased from 6,310,600 in 2016, to 6,646,200 in 2017, and then that number fell to 6,501,800 in 2018. And while overall Las Vegas visitor volume is up right now in 2019 over 2018, there’s no indication that will last. It’s only up by 7 tenths of one percent over 2018 to date, according to the latest LVCVA spreadsheet from its website.
A Note On The Impact Of The Las Vegas Shooting On Visitor Volume And The Las Vegas Stadium
The sad event that was the October 1, 2017 mass shooting that killed 58 people and wounded 422 concert goers and at a Madalay Bay property located just across 1-15 from Las Vegas Allegiant Stadium, did not have a giant lasting impact on Las Vegas visitor rates. A look at Las Vegas Convention and Visitors Authority spreadsheet data shows that the visitor rate problem started in the month of July of 2017, and started a consistent string of monthly visitor count deficits that continued through to 2018.
The problem, as I identified here (https://zennie62blog.com/2018/02/08/oakland-raiders-las-vegas-nfl-stadium-tax-revenue-fall-due-to-fewer-asian-visitors/) is a fall in the number of visitors from Asia – and note that I talked about that in 2018, way before the China Tariff issue, which I will get to in a moment.
And now, we have the problem of the tariffs on Chinese products issued by President Donald Trump. Trump’s actions have caused a fall in Las Vegas visitors from China and for the first time in 15 years according to the Las Vegas Sun (https://lasvegassun.com/news/2019/may/28/chinese-tourism-to-us-drops-for-1st-time-in-15-yea/). Since that’s a new problem, one that surfaced this year, it’s hard to see how it will do anything but continue the Raiders hotel stadium tax revenue problem.
The Las Vegas Casino Advantage Is Fading Too, Then There’s The Resort Fee Problem
30 years ago, Las Vegas and Reno were the kings of gambling action in America. And while Atlantic City made a stab at Las Vegas’ supremacy, it was short-lived. Now, today, there’s a casino within an hours drive of every major American city. That’s also contributed to the falling Las Vegas visitor rates and in turn the stadium hotel tax revenue problem.
There’s an idea that building professional sports venies can save Las Vegas, but even then, the ability to gamble on sports is not something exclusive to Las Vegas; California can allow it and encourage it, too. That’s also true for at least nine other states as of this writing. So, the idea that sports, alone, can solve the problem, is a dangerous one. A more comprehensive economic development plan is needed.
Las Vegas’s real problem is the giant lack of presence in another industry, like motion picture production or heavy industry. Las Vegas and Nevada are so much a civic child of gambling that when it falls, it takes those great cities with it in terms of visitors and hotel revenue.
It’s for that reason the “resort fee” was implemented. A history of that aside for this presentation, the fact is, it’s went from a reasonable $15 charge, to the level of a cheap room: $45 to $50 per night. That along with other tactics has caused many visitors to feel like Las Vegas is trying to “nickle-and-dime” them to death, so they stay away.
Negative Impact On The Oakland Raiders Revenue For The Las Vegas Stadium
The problem of this less-than-needed hotel stadium tax revenue also impacted the “pay-as-you-go” fund that the Raiders were to use until the stadium bonds were sold in April of 2018. The shortfall caused the organization to suspend contract extension plans for Khalil Mack and Amare Cooper. And while the Raiders sent out a quiet message that there wasn’t a financial problem, a simple look at the actual hotel stadium tax revenue coming in and compared to preliminary estimates, showed a short-fall in the collected pay-go-funds.
What I wrote on that on October 26th 2018, was this:
Right now, the average hotel stadium tax revenue is -$517,103.70 below what the bond debt service will be next year. But then, guess what folks, look at this:
The target monthly revenue for the bond issue is $4,500,470.38, and, again, the average hotel stadium tax revenue is -$517,103.70 below that number. But when we look at the rolling average hotel stadium tax revenue since the first time the tax money was collected March of 2017, we find that for most of the 19 months of revenue collection, those dollars have been less than the average $4,500,470.38 in monthly revenue the bond needs. The last time there was enough money to cover that was April of 2017.
In other words, this deficit problem has existed and yet no Clark County Official knew of it, or if they did, said anything about it – just continued toward making sure the bond issue was done on April of this year, 2018, and so the interested parties could collect their fees attached to what were bond proceeds of $647 million. This happened while it’s clear that deal was struck, and what would appear to be in violation of Nevada Senate Bill One. The nature of the problem is such that it spills over onto the very operation of the Oakland Raiders – and explains (in part) why star players Khalil Mack and Amari Cooper were let go.
Las Vegas Stadium Authority Is Trying To Avoid An Obvious Problem
The Las Vegas Stadium Authority has tried to avoid this problem. I even called Jeremy Aquero of Applied Analysis, and of the staff to the Las Vegas Stadium Authority, to share what I found, and he just said I was wrong, and would not allow me to finish my statement, only laughing. I’ve resisted reporting what was a very unprofessional approach on Jeremy’s part, but it’s part of the overall problem I’ve faced in reporting on the issue. Prior to that exchange, I managed to talk with him about the tax rate problem in 2018 and he said that rhe rate “is what it is”, and could not be changed unless the Nevada Legislature took up the matter:
There are only two people in this who have treated this issue with the care and professionalism it deserves and that’s Clark County Finance Director Jessica Colvin and Guy Hobbs of Hobbs and Ong, and who served as the financial advisor to the County. No, they didn’t agree with me at the time, and Colin, in a conference call, expressed confidence in the work of the consultants, but they were very professional and did not try and make my questions a personal issue.
I even tried to get the attention of then- Clark County Commissioner and now Governor of Nevada Steve Sisolak. But Sisolak was also not willing to see the stadium hotel tax revenue problem that was developing (kinda like the City of Oakland and Insight Terminal Solutions). And I met him at the 2018 Las Vegas Convention Expansion Groundbreaking during CES Las Vegas 2018, and Sisolak said to me “You’re not here to cause trouble are you?” I said “Steve, do you realize if you listened and implemented my suggestions, you’d have a better stadium project?” He said nothing, then walked off.
Governor Sisolak’s a good democrat who believes in creating well-paying jobs. But Governor Sisolak can’t walk away from a problem that will cause his own Clark County taxpayers to pay money that they don’t want to cough up. Fix the problem, increase the stadium hotel tax rate and give a little to the Clark County School District in the process. That’s the only way (The NFL’s Raiders have a shortfall in sponsorship revenues that aren’t made up by PSL sales and can’t help) and Governor Sisolak can get the Nevada Legislature to do it.