Las Vegas Oakland Raiders NFL Stadium Legislation Has Fiscal Mistake That Hurts Clark County

Las Vegas Oakland Raiders NFL Stadium Legislation Has Fiscal Mistake That Hurts Clark County
Las Vegas Oakland Raiders NFL Stadium Legislation Has Fiscal Mistake That Hurts Clark County In its rush to approve a poltically-motivated recommendation for a $750 million subsidy for Las Vegas Sands and for an NFL-ready stadium ostensibly for the Oakland Raiders, The Southern Nevada Tourism and Infrastructure Committee, lacking a second opinion on the design of the proposed public subsidy, and whether it would actually work, allowed itself to be intellectually bullied into accepting a plan that has no real written protection for Clark County, Nevada. The fiscal plan was formed to create an argument that a $750 million subsidy was doable, even if the fact was that it's too high by $200 million. In municipal bond finance, there is a term called “the debt coverage ratio”. That means the amount of money that, in this case, a tax, is projected to take in, over and above the annual bond payments plus interest required to pay for it over time, in this case 33 years. Ideally, you want twice the revenue to come in annually over the cost of the annual bond payments, or that's called “annual the debt service”. In fact, municipal bond finance calls for a debt coverage ratio of 2. I've written and vlogged about this before, but it bears repeating because the basic problem still exists, and now the Nevada Legislature is being asked to approve it by Governor Sandoval. The $750 million bond issue is based on a debt coverage ratio not of 2, but of 1.5. In other words, they would be allowed to take in less money over and above the annual the debt service – a riskier bond issue. So why do 1.5 and not 2? Well, $750 million times 1.5 is $1.125 billion - $750 million times 2 is $1.5 billion. So in order to justify the $750 million you only need $1.125 billion and not the additional $375 million, which would get us to $1.5 billion. When I first raised this issue, the original $750 million bond plan was to be for what's called a “revenue bond” - that means the bond is based on the projected revenue stream from the tax increase. But when the SNTIC elected official started to ask questions about the debt coverage ratio, the bond plan was changed so that it is a general obligation bond. The definition of a general obligation bond, according to the Municipal Securities Rule Making Board is this: “Typically refers to a bond issued by a state or local government that is payable from general funds of the issuer, Most general obligation bonds are said to entail the full faith and credit (and in many cases the taxing power) of the issuer - Clark County. By contrast, a revenue bond is a type of bond issued by a state or local government, but is based on a specific source of revenue, like a hotel tax, in this case, or the sale of personal seat license's in the case of the first Raiders Deal that upgraded the Oakland Coliseum and paved the way for the Raiders to return to Oakland from Los Angeles. In the case of the first Raiders Deal, the protection against bond default in case less than the required level of $83 million in personal seat licenses were sold were the general funds of the City of Oakland and the County of Alameda – only $56 million were sold. The deal didn't work, and the City of Oakland and the County of Alameda are into their 20th year of $20 million in annual payments from their general funds. The Las Vegas Raiders Deal is written in such a way that it dips directly into the Clark County General Fund, and while the stadium authority is used as the collector of tax money from the hotel tax, there's no language that specifically says that no part of the Clark County general fund can be used in place of, or in addition to the tax revenue that's collected by the stadium authority. There is no language that specifically defines where the Clark County general fund is in the deal – it's not there. Yet, the legislation calls for a general obligation bond, but it's based ostensibly based on a single-source of revenue, the hotel tax increase. Right? So if the Clark County's floating the general obligation bond, where is the language that it collects the tax revenue from the stadium authority? It's not there – the stadium authority is the collector of the money. Normally under a general obligation bond, Clark County itself would collect the tax revenue, and not the stadium authority. What this should have been is the County collecting the tax increase revenue, and then giving to the the stadium authority the amount needed for the bond debt service. It's like someone at the SNTIC didn't want Clark County to have clear control over the flow of funds, but then forgot that its being asked to issue a general obligation bond! This is all messed up. You can't guess at the correct answer and say “Well, they intended this” – it's supposed to be written in the legislation. It's not there.
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