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Tuesday, September 6, 2016


SNTIC Use Risky Bond Debt Coverage To Justify $750M Oakland Raiders Las Vegas Stadium Subsidy 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 http://ift.tt/2cgyX1D, here http://ift.tt/2cp7rw5 and here http://ift.tt/2cgyzjC ) 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: http://ift.tt/2cp7msk MORE....



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