The Southern Nevada Tourism and Infrastructure Committee, or the SNTIC group assembled by Nevada Governor Brian Sandoval to recommend a course of fiscal action to the Nevada Legislature and to ostensibly solve pressing infrastructure problems, is staffed by a group of consultants that is using substandard municipal bond calculations to justify recommending a $750 million public subsidy requested by billionaire casino operator Sheldon Adelson.
If the recommendation of $750 million is pushed by the SNTIC, which is using a below-industry-standard bond debt coverage ratio of 1.5, the result could be asking the Nevada Legislature to approve a bond issue that would be closer to potential default than any bond Clark County has issued in the past. Clark County would, indeed, be on the hook for $750 million that it could not comfortably afford to pay.
In considering a proposed municipal bond issue, an investment bank looks for the ability of the bond issuer to pay off the bond that they want to float. Or, to put in it more specific terms, the series of bonds that Clark County will be asked to issue if Sheldon Adelson gets his way and is granted his $750 million ask, will have to have a revenue stream that is greater than $750 million over a 30 year period. The difference between the total amount of that revenue stream and the $750 million is called the “debt coverage ratio” – there is a common standard number for this in the municipal bond industry.
According to several online sources (here https://www.thebalance.com/tests-of-safety-for-tax-free-municipal-bonds-357928, here http://www.aaii.com/investing/article/what-you-need-to-know-about-investing-in-municipal-bonds
and here http://lightbulbfinancial.com/municipal-bonds/ ) the standard debt coverage ratio is 2, or two times the public subsidy of $750 million. That would come to $1.5 billion over 30 years.
But the total revenue from the planned hotel tax increase of .007 (or 7-tenths of one percent) over the 30-year period is $1,232,346,395.86 and assumes the following: 162,745 hotel rooms in Clark County, an average room rate of $111, and an occupancy rate of 89 percent – all of those assumptions are at the high end for Clark County and done so by this blogger deliberately to stress-test the proposal. No one can say I was deliberately using low estimates to achieve this outcome.
The result of $1,232,346,395.86 subtracted from the needed revenue of $1.5 billion come to a shortfall of $267,653,604. In other words, there is not enough money to afford the $750 million NFL Stadium public subsidy over a 30 year period. In effect, the subsidy needs to be lowered by $150 million just to meet the requirements for what the municipal bond industry would consider a non-risky subsidy – or about $600 million
Thus, early SNTIC hearings where a $600 million subsidy was discussed were reflecting a fiscally responsible strategy to pay for an NFL Stadium.
By contrast, the SNTIC Consultants, in using a 1.5 debt coverage ratio, came to just $1.125 billion in revenue needed for the $750 million subsidy, or $750 million times 1.5 instead of 2 – do you see?
In effect, the SNTIC Consultants picked this lower debt coverage ratio to justify the $750 million subsidy, when a $600 million subsidy was the best action to recommend.
I placed the spreadsheet I created online and here for anyone to look at and to replicate. You can get it here: https://www.scribd.com/document/323142578/SNTIC-Bond-Subsidy-Debt-Coverage-Spreadsheet-For-Oakland-Raiders-Las-Vegas-NFL-Stadium
SNTIC Consultants Think Adelson’s Being Generous
The SNTIC Board has not been treated to a discussion of what Clark County can truly afford to do – indeed, County Commissioner Steve Sisolak was only told that the County could afford the $750 million subsidy, but he and the board was not shown in detail how this was the case. It should be, especially considering a recent talk I had with an SNTIC Consultant.
The SNTIC Consultant I will not name remarked something to me was shocking – he said that Sheldon Adelson was being generous in his planned stadium payment of $650 million, and believed that should justify the $750 million public subsidy!
I asked why not use the 3 to 1 debt coverage ratio that is commonly employed by the Las Vegas Convention and Visitors Authority for its bond issues, my SNTIC Consultant friend remarked that that was the LVCVA’s way of “hoarding money.” I challenged the use of the 1.5 to 1 ratio, and he remarked that “we would just have to see how all of this plays out.”
Wow.
When I argued that Adelson could just pay for the stadium himself, considering he’s worth $28 billion, my comment opened the door to the end of our friendly and highly technical phone conversation.
I could not get that talk our of my head, so I began to wonder who was paying the SNTIC Consultants? They’ve done a lot of work, and they’re not working for free – who’s paying them? If it’s the Governor’s Office, then where is that money coming from? Is it Adelson? Las Vegas Sands? Taxpayers? Who?
Stay tuned.
Zennie Abraham | Zennie Abraham or “Zennie62” is the founder of Zennie62Media which consists of zennie62blog.com and a multimedia blog news aggregator and video network, and 78-blog network, with social media and content development services and consulting. Zennie is a pioneer video blogger, YouTube Partner, social media practitioner, game developer, and pundit. Note: news aggregator content does not reflect the personal views of Mr. Abraham.