Sunday, January 22, 2012

BS #53: A Herd of Elephants

BlogSpasm #53

The discussion regarding the city council and the proposed $250 million Entertainment Center is really starting to heat up. Sides have been taken and it doesn’t appear that reason, responsibility and accountability are being given due weight in the discussions.

In February, the council should receive a report from a bonding agency as to the feasibility of the council being able to finance $170 million in bonded debt for the Entertainment Center. Of course, the council has already been apprised by their paid bonding and financial agents that to finance $170 million they would be required to double pledge HOT taxes and place property tax payers on the line for any revenue shortfalls from the Entertainment Center if investment grade bonds are not issued. Additionally, the $170 million package could jeopardize the city’s AAA bond rating and possibly create operating funding issues for the Arts Center and the ICVB.

With all this in mind, let’s look at the elephant in the room that the council doesn’t want to discuss. Actually, it appears that there could be a herd of elephants in the room. Simply stated:

A. Those in favor of the council going forward with the project at the original estimate of $250 million by selling $170 million in bonds:

This scheme also requires that Billy Bob fund $80 million of the total. Billy Bob will also have a 100-year, no-liability (exposure to any bonded debt cost) lease. What the council fails to mention or discuss is that tax payers voted and were assured that they would not be responsible for ANY of the Entertainment Center cost, just as they were told the same about the Convention Center.

Tax payers have already seen that the Convention Center has dipped into General funds for their operations during their first year and it is projected that this will continue for several more years.

What some individuals might not understand is that the Entertainment Center and the Convention Center have to sustain their operations with two funding sources: revenues generated from operations (ticket sales, parking, conventions, etc.) and HOT (Hotel Occupancy Taxes) tax dollars. If either of these funding sources fall short, then the only back-up will have to be property tax payers. And these are the elephants in the room that the council fails to mention or simply just doesn’t want to discuss.

And those favoring the $250 million position are spending a ton of money, lobbying the council insidiously, and glossing over the burden that this proposal could have on property tax payers to cover any bonded debt shortfall.

Also, if the project revenues do not materialize, then General funds will be required to supplement the operating budgets of the Arts Center and ICVB. This would be necessary to meet bonded debt shortfalls, since HOT taxes were double pledged.

Why don’t the supporters of the $170 million bond package want to recognize all of the elephants in the room under this proposal and discuss them in pubic forums? No elected official or promoter has mentioned the possibility of increasing property tax rates to cover any shortfalls if the $170 proposal goes forward.

B. Those in favor of funding an Entertainment Center at $128 million by following current bond and financial advisor recommendations:

This recommendation is already before the council and reflects that $128 million (plus Billy Bob’s $80 million) can finance an Entertainment Center WITHOUT placing property tax payers on the hook. Sure, this level of funding does not provide as palatial a facility as originally planned, but it will still provide what most seem to believe is needed as an adjunct to the convention center. Issuing bonds at the $128 million level has accounted for all the fluffy revenue projections detailed by the developers, and attempted to be somewhat conservative to spare property tax payers from having to be a part of the bonded debt burden.

This level of funding does not have any elephants roaming around the room and property tax payers are more assured that they will not see their tax rates increased to fund Entertainment Center bonded debt.

Of course, there is still the revenue shortfall for the convention center that the council will have to deal with that could require property taxes to increase due to less than anticipated HOT tax collection projections. (“The city already has an average annual shortfall of $2 million on the convention center debt, Chief Financial Officer Max S. Duplant said Wednesday.”--DMN 1-11-12. Note: This states that this is ‘already an annual’ expenditure that was not anticipated at the front end of the project!)

C. Those who believe that the city should not be in the entertainment or hotel business:

While this is a truly conservative approach, it does have merit...especially if there should be any city funds in the proposal or property tax payers are in jeopardy for any bonded debt. And numerous reports can be reviewed that demonstrate that cities involved in the hotel business end up losing money that must be recovered from tax payers.

For all of those discussing and debating this issue, these are the facts...pure and simple. While some may choose not to acknowledge them, the facts will not change. And if pointing out that a fact appears to be ‘negative’ to the other side of the fence, then we stand convicted.

Readers of the CCR reports can always take exception with our choice of words when describing an issue, but this does not excuse them from dismissing factual information when presented. To do so certainly reduces the credibility of their argument.

After all, the final decision of the council on the Entertainment Center should not go to the side that has shouted, lobbied or spent the most money in an attempt to convenience the public, but rather to the side that is truthful, accurate and reflects that a financial liability for property tax payers for bonded debt payments is not present.

…………..Mark Holbrook

Ringtail Productions Limited

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