We don’t need 8K. The city is wrong.

I already wrote about the city’s “error” where they told us instead of the 2,306 signatures required to qualify the initiative, we need 8,258. You can read the city’s letter here.

Essentially, somebody over at the City Hall has decided that the Nevada Constitution doesn’t mean what it says, it means what they want it to. This is the city’s justification for violating the law, under which our Committee only needs to gather 2,306 signatures 15% of the number of people who voted in the last city election.

It turns out that the Legislature has taken up the city’s interpretation of the Constitution – that the phrase “preceding general county or municipal election” really means “preceding general county or general municipal election” instead of what it says. In 1967, the Legislature specifically considered and rejected applying the percentage to the last city general election and made it the last city election.

Here is the letter I would have delivered to the City Clerk’s office yesterday if it has been open. We are requesting they acknowledge that we need to gather 2,306.

If you don’t fight, you can’t win

Here is the letter from the City describing how they decided to change the target number of signatures required from 2,306 to 8,258.

Article 19 of the Nevada Constitution was amended in by the Legislature and the people about the time I was born. It’s about how citizens of a state go about petitioning its government directly. The focus is mostly on state matters – state law, the state Constitution, etc. Way down in section 4, it says “Oh, by the way, this applies to counties (regional government) and cities (city government) as well. It combines both in that one paragraph.

It says:

initiative petitions may be instituted by a number of registered voters equal to 15 percent or more of the voters who voted at the last preceding general county or municipal election.

When the Legislature next met, it turned the new Article 19 into Nevada Revised Statute 295. They separated county initiatives and city initiatives into separate sections, as you can see. They considered whether the amendment authors meant :”at the last preceding general county or general municipal election” or meant what they wrote.

Amongst their considerations is how odd City Elections are: they are held apart from normal November elections, in June. Often, only half of the city votes. Sometimes, there is no general election. Generally, cities’ purpose – making sure the water system works, the sewer system works, the police, fire and emergency response systems work, and the roads are serviceable – does not make controversy. Redevelopment Agencies had not yet been added to Nevada law, so no one had figured out how to turn them to personal profit at the expense of taxpayers, or that they don’t accomplish much.

And they decided that the amendment authors actually meant what they wrote, not something else. So, in the paragraphs about cities which does not include counties, they wrote (at 295.205(2)):

Initiative petitions must be signed by a number of registered voters of the city equal to 15 percent or more of the number of voters who voted at the last preceding city election.

In determining the number at 2,305, the City Clerk applied the Constitution’s plain reading, the law, and all City of Las Vegas precedent to base the calculation on the turnout at the last preceding city election.

Yesterday’s letter is based on the City deciding that the Legislature was wrong, lo those many years ago. Instead, the Constitution doesn’t mean what it says, because it was sloppily drafted. The City now contends that what they really meant to write was “at the last preceding general county or general municipal election” instead of what they actually wrote.

What do you think? Any attorneys out there want to take this up pro-bono? Maybe ask a judge for an extension of time, at the least?

MLS 2014 Top Stories: “Expansion Surge”

Nate Sulat, writing for the MLS official website MLSSoccer.com on Monday, says the 8th biggest story for MLS fans in 2014 is the league’s expansion surge. He notes that the league awarded two new franchises during the year, to Atlanta and Miami, and plans to award one more sometime in the first half of 2015.

About Las Vegas, Sulat writes:

But the inclusion of Atlanta and Miami means that a place like Las Vegas – with very little fanfare until 2014 – still has hope on the basis of their large and rapidly-growing population. The owners have submitted a contentious stadium proposal that will be voted on by the City Council this week.

Both the Miami and Atlanta metro areas hold 5.5-million people each, two and a half times larger than Las Vegas, and the distance between the two (about equal to the distance between Laughlin and Burning Man, both inside Nevada’s borders) holds another couple of million potential fans.

You won’t find more than a few tens of thousands of additional people within a two hour drive of Las Vegas, thought It’s statistically valid to bump our population up by a half million visitors (40,000,000 annual visitors x average stay of 4.3 days ÷ 365 days a year), which still leaves us less than half of Miami or Atlanta.

Sulat quotes MLS commissioner Garber:

“(Atlanta) is much different than the average American or Canadian city,” MLS Commissioner Don Garber said in April at the team’s introductory press conference. “It’s incredibly diverse. It’s very young and most of those young people are working at corporations downtown and are living downtown.”

Las Vegas, of course, is also much different than the average American or Canadian city – we’re already the entertainment capital of the world, home to Penn & Teller, Wayne Newton, David Copperfield, Celene Dion, BB King, and, this month anyway, KISS. We’re also different than Atlanta, in that we do not have very many people working at corporations downtown or living downtown.

Here’s the entire story at MLSSoccer.com.

We Won’t Get Fooled Again

Because we’re uncomfortable showing the front cover

The “final” deal details for City of Las Vegas taxpayers to give public money to a downtown soccer stadium were released this week. It’s not very different from the last several sets of deal details, though it is much less risky for Las Vegas taxpayers than the first deal that was proposed (which had the city paying for almost all of it). And all of it is contingent on Las Vegas actually being awarded a soccer team (which seems less and less likely).

Here is what the City will be giving to the wealthy team owners:

  • The City will borrow $25-million and build the stadium’s parking garage. The team owners will be given free use of the garage for up to 90 event days per year, during which they will be able to keep whatever they can charge people to park. This will be only a little closer to the front door than the existing even larger garage at the World Market Center, which is nearly empty 49 weeks out of the year (the other three weeks are when the World Market Center holds its international home furnishings trade show, when it is full). This seems likely to spark a “rate war” on most game days, when the World Market Center might charge less for parking than the team owners will charge.
  • The City will give the team owners $56-million, about half of it borrowed on “revenue” bonds instead of “general obligation” bonds. The risk to taxpayers is identical, but the cost to taxpayers is much higher for technical reasons that Guy Hobbs explains here. The loan will be repaid from parks maintenance/construction funding. The other half is money that will empty out City savings accounts.
  • The City has been given $50-million in coupons from the Federal Government that really rich people can use to get out of their income tax bills with (called “New Market Tax Credits”). The City plans to fire-sale these coupons for $10-million and give the proceeds to the team owners.
  • The land in Symphony Park is worth $38-million to $48-million. The City didn’t pay that much for the land years ago, but has borrowed dozens of millions of dollars (still not paid back) to “improve the site.” Through a complicated long-term “ground lease”, this land will essentially be given to the team owners.
  • The City will give back the “property tax increment” – basically about 75% of the property taxes that the facility would pay, something between a half million and a million per year. [This will only be given to the team owners if they actually build the stuff they’ve promised to build.]
  • The team owners will offer soccer clinics for kids that the team owners value at a half million dollars per year (this is a league requirement for all MLS teams).
  • The City Council gets a free luxury box suite in the stadium.

The council is expected to vote this proposal up or down next Wednesday.

Avoiding Oversight

Avoiding the DMC?
Hat tip Erica with a C for the image

Last week, I appeared on Channel 3’s Ralston Report with fellow Councilman Bob Coffin. He had some new information – the City was planning to borrow $50-million to give to our designated stadium developer with “revenue bonds” rather than “general obligation bonds.”

Fortunately, local government finance expert Guy Hobbs volunteers lots of his time for youth soccer programs, and has done so for many years. The City is proposing that we hurt those programs by taking some of our annual parks funding and using it to pay for the stadium, so Guy has been agreeing to offer to educate me as we go.

I already knew the basics – a GO Bond is “backed” by the full faith and credit of the city. If, for some reason, it could not be paid back, the City would be required by law to lay people off in order to free money up to make payments. A Revenue Bond is backed by a specific source of revenue, rather than all sources of revenue, and our full faith and credit.

But Guy is a master of the subtleties. So I asked him what the difference was. Here is his response:

Prior to discussing the significance of the City using revenue bonds versus general obligation revenue bonds, I thought it might be helpful to summarize the public contributions to the funding of this stadium initiative.  From what we understand, the City is proposing to provide the following:

Land                                                  market value?

On and off-site work                          $30 million

Parking garage                                  $20 million

Rent pre-payment                             $25 million

As is shown, this “privately financed” stadium is being supported by public funds in excess of $75 million (plus the land value).  It appears that one of the give-backs to the developer is in the area of the on and off-site commitment from the City (which was previously identified as a $14 million cost, and is now being estimated by City staff as a $30 million cost).  Additionally, the emergence of the parking garage as a project element came about only as a consequence of the stadium and, thus, is directly linked to the stadium.  City staff will have some additional work to do to qualify the rent pre-payment as an appropriate use of bond funds.  It is not an appropriate use as described.

It should also be added that the source of funding that the City will have to bond – whether GO or revenue bonds are issued – is the City’s C-Tax revenue.  As has been mentioned a number of times, the room tax collection commission revenues cannot be pledged as security for the bonds.  Even if these funds are used as a source of repayment, it is the City’s C-Tax revenues that will be at risk should the room tax revenues become unavailable.  Thus it should be made clear that the risk is to general City revenues, not the room tax revenues.

With regard to the suggestion that the City may be contemplating issuing revenue bonds in place of GO revenue bonds, it must be presumed that this is being done to avoid having to take the issue before the Debt Management Commission (DMC).  Since this (Revenu Bonding) is a financially disadvantageous move, avoiding other protocols that might result in a negative outcome for the proponents is all that can explain the logic.  It should be made very clear that there is a significant cost associated with issuing revenue bonds to simply skirt DMC approval.  This cost difference to the public will be estimated below.

Three areas of dis-economies come to mind.

First, revenue bonds do not carry the same credit quality as GO bonds and, thus, will require a higher interest rate and cost to taxpayers.

Second, revenue bonds generally require the funding of a debt service reserve fund (DSRF) – typically one year of principal and interest.  In this case, one year of principal and interest is estimated to be $3 million (as this is the control variable in structuring the debt).

Third, revenue bonds also require coverage of a likely 1.5 times.  This means that the City would actually only be able to commit $2 million of the $3 million in C-Tax revenues to direct debt service.

When taken together, this means that the City would be willing to pay a higher rate of interest to ultimately receive less bond proceeds for the parks and stadium projects.  From a pure financial standpoint, this would be terribly unwise.  The difference in bond proceeds between a 30-year GO revenue issue secured by $3 million per year in C-Tax, and a 30-year revenue bond also secured by $3 million in C-Tax (with the DSRF and coverage at 1.5X) represents the cost of avoiding the DMC and the added cost (in terms of lost value) to the taxpayers.  The project fund deposit for the GO issue would be close to $50 million (we have assumed current rates at the City’s credit plus 100 basis points), which includes a premium structure.  If the same revenue were pledged without the GO and assuming the funding of the DSRF and 1.5x coverage, the project fund deposit would be under $31 million.  Of course, the extra revenue, once coverage is achieved, can be used for other purposes.  If the coverage were discounted, the project fund yield would be $46.3 million (reflecting the cost of funding the DSRF).  In any regard, this clearly shows that with a revenue bond approach, the cost of capital increases and the bond monies available for projects declines significantly.  Again, issuing revenue bonds to avoid DMC is a very costly proposition.

It would be very interesting if someone attempted to describe the removal of the GO backing as a way of reducing City risk, since the C-Tax revenues are general fund revenues.  General tax revenues would, under this scheme, still be at risk.