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 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 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 litterally picked out of the air by Oakland Raiders Owner Mark Davis, and Las Vegas Sands Founder and CEO Sheldon Adelson.

Initally, 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.

Stay tuned.

Las Vegas Oakland Raiders NFL Stadium Debt Service Spreadsheet by Zennie Abraham on Scribd