Countys Spin Reverses Message In Stadium Bonds Reports
Written by Michael Lewis on June 4, 2009
By Michael Lewis
A county press release last week cheering "another major milestone" in financing a stadium for the Florida Marlins was totally off base.
"All three bond rating agencies, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, have given the county solid marks, determining that our tourism sector is sound in the long run and bonds backed by tourist dollars are good investments," the release trumpeted.
If you believe that’s what the raters actually found, the county has not only stolen a base, it has stolen home.
What rating agencies actually wrote in detail is not that tourist taxes can repay stadium bonds but that Miami-Dade’s general revenues, which pay for every county service, should cover all bond payments that tourism taxes can’t.
That’s part of the world of difference between reality and what county spin doctors tell you.
Remember, in touting that $645 million project, officials put general funds off limits. Tourist taxes were to pay the bill — until administrators finally admitted that in our economic slide tourist taxes were nose-diving, so they pledged general funds too, just in case.
The bond raters tell us it’s much, much more than that — investors rely on the general fund to get repaid. And the pledge from non-ad valorem sources, $893 million in 2008, is what the bond raters focused on.
Of those non-ad valorem funds, 26.6% are service charges, 25.9% from utility, communication, gas and franchise taxes and 25.8% from state sales tax and revenue sharing. Those funds, mingled with property taxes, keep the county running.
One rating agency said repaying bonds would come ahead of all spending other than for police, fire and building compliance if tourist taxes fell short. Another said what’s off limits is unclear. But all focus on money that the county claimed was foul territory.
The raters also state that projections of tourist tax income are optimistic and that after the first few years they’re unlikely to cover bond payments. That means tapping the general fund.
County Chief Economist Robert Cruz says in day-long meetings with each rating agency he, County Manager George Burgess, Greater Miami Convention & Visitors Bureau CEO Bill Talbert, Beacon Council CEO Frank Nero and others were questioned closely on tourist taxes.
None of the raters’ subsequent reports matched the county claim that they found "bonds backed by tourist dollars are good investments."
Rather, Fitch calls our tourism "mature" rather than fast-growing and cites its "historic volatility due to socioeconomic and weather events…"
Moody’s says, "The gradually ascending debt service schedule… is based on somewhat optimistic estimated growth in pledged [tourist tax] revenues." It cites current and past falls in tourist tax income as "indicative of the vulnerability and narrow pledge of this revenue source."
Standard & Poor’s says "the back-loaded debt service schedule requires [tourist tax] revenue growth to continue at a strong compounded pace of 3%-5% beginning in 2011 without interruption for 40 years, which we believe is unlikely."
Raters pointedly note that today’s level of tourist tax revenues would cover only 37% of payments due in the final year.
They also highlight that the deal balloons. While tourist taxes should barely pay the first year’s $10 million due, they say, payments balloon — just, we might add, as did mortgages that triggered the housing collapse.
Only 12.1% is to be repaid in the first 10 years. So by 40th year — yes, our grandchildren will still be paying off stadium bonds — the annual cost balloons to $74.6 million, which is nearly a quarter of the $321.5 million being raised in five series of stadium bonds.
Moody’s calls it a "heavily back-loaded debt structure." That means a heavy balloon of debt loaded on the backs of future taxpayers.
Just how much that balloon will expand we’ll learn when the county seeks bids on four of the five series next week. It proclaims a hefty 7.5% ceiling on interest it will accept.
Another $100 million in stadium bonds is due in July, after the county can no longer back out of the contract with the Marlins. Come the July 1 OK to start construction, we’re locked in even if interest skyrockets.
"It appears that we’re 99.9% there," said Ron Albert in leading the Greater Miami Chamber of Commerce Sports Committee’s goals session Friday. "It is my understanding that the last thing that has to happen is financing."
It won’t come cheap. Selling municipal bonds today is no walk in the park. The Miami Parking Authority wants to bond several projects but considering the high rates "I wouldn’t go to market right now," said CEO Art Noriega.
That’s unlikely to deter the county, which feels that in severe recession, when revenues are in rapid decline, assessments are falling and services must be slashed, what the public needs most is a baseball stadium.
County officials are so anxious to build that two of the bond series totaling $92.9 million are being issued just to pay off bonds issued in 1998, adding $22.9 million to taxpayer costs in order to stretch repayment nine years further off, to 2039. That’s a hidden stadium cost.
All of this aims to replace one ballpark, capacity 36,331 and averaging ticket sales of 18,763 a game, with another, capacity 37,000, and funnel all revenues of a county stadium on formerly City of Miami-owned land to the Marlins.
That’s certainly a recession-buster for the team, but not for the community.
Giving away the former Orange Bowl site is "a very bad deal for the City of Miami," said city Commissioner Tomás Regalado at the chamber’s goals session Saturday, recalling that to build AmericanAirlines Arena the city was paid for its valuable land. After ballpark construction, he said, "there is no income that we are going to get in the future."
While the city gets nothing, bonding will require the county to set aside general funds every month and every year for 40 years to cover potential tourist tax shortfalls — even if by chance tourist taxes do end up covering that year’s debt load. So much for no impact on general funds.
Of course, pledging tourism taxes as well to baseball will eliminate any use for any tourist-related purpose that might arise in the next 40 years. But our mayor, commissioners and manager won’t be around then.
Just bonding now remains, and officials are unlikely to allow even high interest rates and high future taxpayer burdens to stop them.
Revenues from tourist taxes have plunged in the recession as hoteliers have slashed rates. While room rates can fall fast, they return only over years.
That particularly impacts high-end hotels, and, as Mr. Talbert pointed out at the chamber’s sports session Friday, "We have more four- and five-star hotels than just about any place on the planet."
All of that equates to less tourism tax income than planned for years.
That puts even more pressure on non-ad valorem income at the worst possible time. Listen to the dire warning for the county from Moody’s:
"Non-ad valorem revenues, which are used to pay operating expenses, are becoming an increasingly important budgetary funding component as property tax growth is constrained by both a weakened economy and statewide tax reform. Moody’s believes that continued over-leveraging of this pledge could restrict future financial flexibility, especially as revenue growth slows.
"Additional non-ad valorem obligations are not precluded in the ordinance… thus not adequately reflecting the county’s overall exposure."
Miami Mayor Manny Diaz at the chamber Saturday hailed a stadium, as did mayoral candidate Joe Sanchez. County Commission Chairman Dennis Moss said "the chamber stood by us in a partnership and because of that we are going to be building the Marlins stadium."
All three could use a good look at the bond rating reports before patting themselves too firmly on the back. The picture is far from pretty — at least, for taxpayers in Miami-Dade County.