Setting Nevadans Up For A Massive Tax Hike – again!

In preparation for the upcoming budget wars lets take a look at Nevada’s welfare rolls from the pre-recession levels, through the 2007-09 recession, and during the recovery from 2009 through FY 2015. The picture from below (from the Nevada Division of Welfare site tells the story:
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This is the TANF caseloads from 2006 through 2015. TANF is the new acronym for welfare (Temporary Assistance for Needy Families). In 2007 the caseload was 17,712. At the end of the recession the caseload was 22,556 (a 27% increase). That’s a lot, but it was a tough recession – fine. But then look what happened after the recession ended. The Caseload in FY2015 skyrocketed to 35,576 – double the 2007 prerecession levels and 58% higher than the caseload at the end of the recession. Something has gone seriously awry. And it is not that the population has grown. The welfare recipients per 1,000 in NV population ballooned from 6.62 to 12.57. Simply astounding. Remember that when they want another billion in tax revenues to pay for it, including dozens of millions in advertising the welfare expansion to attract potential recipients. Some ad agency out there will do quite well!

The next data point is TANF Medicaid recipients. In 2007 there were 63,008 TANF Medicaid recipients, 23.56 per 1000 Nevada residents. In FY 2015 this number has exploded to 271,967, or 96.12 per 1,000 Nevada residents. The 2015 caseload is more than 4 times the 2007 caseload. Simply out of control.

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The next data point is CHAP (Child Health Assurance Program) recipients. In 2007 there were 28,674 recipients or 10.72 per 1000 Nevadans. In 2015 there is an astonishing 226,816 recipients or 80.26 per 1000 Nevadans. That is an nearly eight fold increase. Are we trying to build the dependency capital of the world?

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The next data point is Food Stamps. In 2007 there were 119,596 Nevadans on food stamps or 44.71 per 1000 Nevadans. In 2015 the caseload shot up to 375,506 or 133.46 per 1000 Nevadans. OMG what are we doing in Nevada. Here is the chart.

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And finally take a look at what they have done with Medicaid – by law, we can’t even institute a simple co-pay to promote responsible consumption. Simply outrageous!

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That is enough for now. It is quite sobering. Remember this when they demand that our taxes be raised by a billion dollars. This is the same crap they pulled in the lead up to the 2003 legislative session. That year was a record tax and spend hike, but set Nevada up to have the most difficult economic recovery of any state in the nation.

Ivanpah Solar Plant: The Money

No doubt you have read concerns that the Ivanpah Solar Electric Generating System down at the Nevada-California state line is an environmental disaster. You may even have heard some recent news that the plant is producing far less electricity than promoters promised. Today, I focus instead on whether it is a financial haircut for all Americans.

It’s not uncommon to find learned folks talking about the Ivanpah Solar Plant as though it was paid for with loans that the federal government “guaranteed”. Here’s the San Jose Mercury News… here’s Wikipedia… it’s was even reported that way by Associated Press reporter Michael R. Blood last week. But that’s the definition of politics – different people observing the same world coming to different conclusions.

It turns out that the Ivanpah project was so risky that nobody would make the loan. In fact, one of the three original partners, Google, quit making its investment payments partway through after calling “for a fundamental rethinking of the technology“.

By digging into the fine print within the financial statements and disclosures filed with the Securities and Exchange Commission by NRG Energy, we can see what happened.

On page 22 of NRG’s 2010 annual report form 10-K, here’s how NRG Energy described the project:

Ivanpah — On October 27, 2010, the Company executed a Letter of Intent to partner with BrightSource Energy, Inc., or BSE, to construct, finance and operate the largest solar thermal technology project in the world, the 392 MW Ivanpah Solar Electric Generating System in southeastern California’s Mohave Desert, or the Ivanpah Project. NRG plans to become the lead investor in Ivanpah, investing up to $300 million in the Ivanpah Project over the next three years. The investment is subject to definitive documentation (including the satisfaction of several conditions precedent), which is anticipated to be executed by the end of first quarter 2011. The Ivanpah Project is composed of three separate facilities — Ivanpah 1 (126 MW), Ivanpah 2 (133 MW), and Ivanpah 3 (133 MW), and all three facilities are expected to be fully operational by the end of 2013. The Ivanpah Project has received a $1.375 billion conditional commitment from the U.S. DOE for a loan guarantee, and has obtained all necessary permits and approvals. Power generated from the Ivanpah Project will be sold to Southern California Edison and Pacific Gas & Electric, under multiple 20-25 year PPAs, each of which have been approved by the California Public Utilities Commission. Ivanpah is located approximately 50 miles northwest of Needles, California, about five miles from the Nevada border on federal land managed by the U.S. Department of Interior’s Bureau of Land Management.

So in 2010’s annual report, NRG had lined up a loan guarantee. If it was unable to make the payments required to pay back the loan, then the federal government would step in and cover any shortfall, collecting the unfortunate surprise from US taxpayers. NRG sounded excited, and positive that with the guarantee it would find a willing lender.

One year later, On page 21 of the 2011 Annual Report form 10-K, here’s how NRG Energy described the project:

Ivanpah On April 5, 2011, NRG acquired a 50.1% stake in the 392 MW Ivanpah Solar Electric Generation System, or Ivanpah, from BrightSource Energy, Inc., or BSE. BSE maintained a 21.8% interest in Ivanpah and the remaining 28.1% was acquired by a wholly-owned subsidiary of Google. Ivanpah is composed of three separate facilities – Ivanpah 1 (126 MW), Ivanpah 2 (133 MW), and Ivanpah 3 (133 MW). Operations for the first phase are scheduled to commence in the first quarter of 2013, with the second and third phases expected to reach commercial operations in the second and third quarters of 2013, respectively. Power generated from Ivanpah will be sold to Southern California Edison and Pacific Gas and Electric, under multiple 20 to 25 year PPAs. Ivanpah has entered into the Ivanpah Credit Agreement with the Federal Financing Bank, or FFB, which is guaranteed by the United States Department of Energy, or U.S. DOE, to borrow up to $1.6 billion to fund the construction of this solar facility. On June 10, 2011, the U.S. Fish and Wildlife Service, or FWS, issued a revised biological opinion allowing the Bureau of Land Management to lift its temporary suspension of activities order with respect to the Ivanpah Project, thus allowing those aspects of the project which were delayed to proceed.

Who is this Federal Financing Bank who had enough cash on hand and chutzpah to lend the money? Complete with an extra $225-million to cover shortfalls even before breaking ground?

Here is the FFB’s website, where heaps of bureaucratese confuse even the most diligent reader. Wikipedia, expressing its institutional tilt toward energy statism and global warming alarmism, regularly scrubs its FFB entry of everything not on the government website. But Fox has published some long analysis. And here’s what the Center for Public Integrity offers.

As you can see, the FFB is owned by taxpayers. It borrows freshly counterfeited dollars directly from the Federal Reserve Bank and “gets them into the economy” in a damaging and incomplete expression of ideas made famous by World War I British economist Maynard Keynes (incomplete because Keynes’ theories called for governments that stimulated a sluggish national economy by borrowing money to pay it back quickly after the economy was stimulated)..

On page 157 of the 2011 NRG Annual Report form 10-K, you’ll find this summary:

On April 5, 2011, NRG acquired a majority interest in Ivanpah, as discussed in Note 3, Business Acquisitions and Dispositions. On April 5, 2011, Ivanpah entered into the Ivanpah Credit Agreement with the FFB to borrow up to $1.6 billion to finance the costs of constructing the Ivanpah solar facilities. Each phase of the project is governed by a separate financing agreement and is non recourse to both the other projects and to NRG. Funding requests are submitted to the FFB on a monthly basis and the loans provided by the FFB are guaranteed by the U.S. DOE. Amounts borrowed under the Ivanpah Credit Agreement accrue interest at a fixed rate based on U.S. Treasury rates plus a spread of 0.375% and are secured by all the assets of Ivanpah. Ivanpah intends to submit an application to the U.S. Department of Treasury for a cash grant; any proceeds received will be utilized to repay the borrowings that mature in 2014.

That bit about “non-recourse” means if the company welshes on the loan, us taxpayers are out of luck. We won’t be able to foreclose on any of NRG’s bank accounts or conventional power generation plants.

That last sentence, by the way, is where this year, Americans are being asked to write off the first third of the FFB loan – that’s the “cash grant” NRG references in the last sentence.

My conclusion is that the Ivanpah plant was not built with money borrowed under a federal government loan guaranty – it was built with taxpayers’ money, loaned by a bunch of administrators who don’t have any heartburn about loans going bad.

Guy Hobbs on the new taxpayer-funded stadium

I asked preeminent government finance expert Guy Hobbs, a Ward 2 constituent, for his thoughts on this week’s new plan to give taxpayer funds to the Findley/Cordish group:

Based upon the presentation made by staff at this week’s City Council meeting, it would appear that the following points summarize the revised funding proposal for the proposed soccer stadium:

  • The City will cash-fund on and off-site work for the stadium. Previously an amount of $14 million was identified for this, though it was not a comprehensive accounting for all expected site work. It is expected that this amount will be greater than the $14 million.
  • The City will “pre-pay” the developer for community events to be held in the stadium. The amount identified is $20 to $25 million.
  • The City will share in TIF revenues generated from stadium operations.
  • The City will use $20 million in STAR bond proceeds to fund the building of a parking garage to serve the stadium and other nearby development. The developer will have access to the parking garage for an estimated 90+ events days.
  • The City will use $3 million per year of room tax collection commissions to bond for up to $50.7 million in projects; roughly half of which would be used to fund an estimated five park projects and the remainder to fund “community access” to the stadium.

As I understood the direction from the City Council at a previous meeting, staff and the developer team was to bring back a funding plan for the proposed stadium that does not include the use of public money to fund the construction of the stadium.   The proposal as described above has shifted direct support of stadium construction using public funds, as was previously proposed, to an approach that somewhat less directly supports the construction with public funds. It still, however, commits public funds to support the stadium construction.

It is very clear that the donation or contribution of the land by the City is a use of public resources to enable stadium development. It is also clear that the use of the $14+ million to fund on and off-site costs is a use of public money. Attempts will likely be made to characterize the use of these funds as something akin to “normal costs to promote economic development”. However, these are still very real costs being funded by public monies.

A new element of the proposal is the willingness on the part of the City to build a parking garage to support the stadium. At an estimated 90+ days of use by the stadium, and an estimated cost of $20 million, it can easily be said that the City is funding direct benefit to the stadium of at least one-fourth of the cost of the garage. However, since this project was not identified as necessary until the stadium became the justification, it can be more appropriately characterized as $20 million in contributed capital to the stadium. Bear in mind, too, that parking for the stadium has been a heavily criticized part of the overall plan. This structure – as undersized as it may be for the stadium – is still a necessary part of the overall stadium project (or it is otherwise unworkable). Thus, the public funds spent to build it are contributions to the overall stadium project. Efforts may be made to couch the parking garage as a facility needed for all occupants of Symphony Park. However, it is the stadium that will be the direct beneficiary, and it is the stadium that is the justification for its need.

It should be added that providing use of the parking garage will provide direct financial benefit to the stadium operators, in that the revenue from parking will inure to the stadium. Unless the City plans on charging the stadium for use of the facility, this offers the operators enhanced revenue potential. Thus, the publicly funded parking garage becomes another way of channeling revenue to the stadium.

The most perplexing and concerning element of the new plan is the suggestion that the City will issue bonds to fund not only legitimate park-related capital projects, but will also use bond proceeds to pre-pay rent for the facility. It should be noted here that one of the presentation slides indicates that “cash, (and) some bonds” will be used to fund this community access. However, the only funds that are specifically identified in the presentation are bond proceeds. This leaves the reader to wonder whether, beyond the bond proceeds, there is also intent to fund additional community access with other cash not disclosed in the presentation.

The use of bond funds to pay for community access, or facility rent, is highly questionable. First, the City is already donating land and site preparation dollars to the project and can easily command access to the facility for those contributions alone. Second, using bond proceeds to fund an operating expense – which is what facility rental would normally be – is highly inappropriate and financially imprudent. Bonds are issued to acquire capital assets, and rent is not a capital asset. It would appear that what is really happening here is a contribution of bond proceeds to help construct the project in exchange for “other” considerations. If this is the case, it is identical to the prior proposal to use City bonds to fund a portion of the construction of the stadium and, thus, a direct use of public funds to build the stadium (albeit in a lesser amount).

It is also concerning that the City would dilute the borrowing power of the $3 million in room tax collection commissions by apportioning any of it to the stadium (which seems to be in direction violation of the direction it received from the City Council). If the City is truly committed to parks and other eligible projects (per the room tax interlocal agreement), it would actually maximize the building and refurbishing of parks. Tying up half of the $3 million per year for 30 years to fund the stadium certainly inhibits the City’s ability to deliver parks facilities that are desperately needed.

Interestingly, when the bond funds and the cost of the parking garage are considered together, the City is still contributing $40 to $45 million in public funds to the construction of the stadium project. When the values of the land and site costs are added, the level of public support rises dramatically.

NH Pumpkin Riot: They Clearly Need Pro Sports

One of the sub-discussions about the proposed MLS Stadium promoters want taxpayers to build in downtown Las Vegas is the fact that Las Vegas is the largest Metro area without major professional sports.

On the other hand, no other Metro area boasts of having Celine Dion or Elton John performing for weeks or months at a time. In other words, some places spend more than half the year with nothing to do, aching for spring, while Las Vegas is already the entertainment capital of the world.

Take New Hampshire, for instance, where this weekend featured a drunken riot at a Pumpkin Festival. Here are the details, courtesy of the Christian Science Monitor.