Correction
I would like to start with a correction. The other day in Not yet I wrote that city council was planning to discuss the email issue in executive session and that there was no item that allowed them to take action after the session. I was wrong. The agenda told us that they might take action after executive session and they did. They delayed for another two weeks.
Bonds
Let me say again that I am personally in favor of building a baseball park. I disagree with how ours was done and where it will be.
It turns out that selling our baseball park bonds to investors is not as easy as selling a bunch of baloney to our former city council.
Investors are allowed to make choices, unlike the citizens of El Paso. They get to choose whether or not to buy the bonds while we did not get the right to choose whether to tear down city hall and build a ball park on the site.
Investors rely on bond rating services to analyze the risks and returns of bonds. Relying on what the bond issuers say would be putting the fox in the hen house.
Fitch Ratings is a bond rating agency that issues reports about bond offerings around the world. I read their analysis of the El Paso ball park bonds and point out the following from the report:
- The bonds are scheduled to sell via negotiation as early as the first week in May.
- HIGH OVERALL DEBT BURDEN: Overall debt levels are moderately high. The pace of principal amortization is slightly above average at just over 50%, but is projected to slow given the city’s debt issuance plans.
- LARGE CAPITAL PLAN: The city’s capital improvement plan (CIP) and debt issuance plans continue to grow to support the city’s ongoing growth related needs and voter-approved quality of life projects. Balancing debt issuance with tax base growth and capital needs is essential to the rating given the city’s growth-related capital pressures and already above average debt service tax rate.
- ESCALATING DEBT: Rapidly increasing debt burden without offsetting improvement in other credit areas could apply some pressure to the rating.
- HIGH DEBT BURDEN AND LARGE CAPITAL PLAN Fitch believes the city will need to balance ongoing capital needs against an already above-average debt service tax rate, slower tax base growth in the near term, and the area’s below-average socio-economic characteristics. The currently average pace of principal amortization is projected to slow in the near term as the city refinances a large bullet maturity and issues additional debt.
Ultimately Fitch rated the base ball bonds as A+, two steps riskier than the city’s AA rating.
Why didn’t they sell the bonds in May? The bond prospectus was not even issued until June 27, 2013. Were they planning changes even back then? Lying to the bond market has federal repercussions.
City staff was forced to approach the Downtown Development Corporation (that’s city council in different clothing) and ask to raise the interest rate they could pay. Investors did not want our bonds. The hope is that if we pay higher interest we will be less ugly and someone will invest in the bonds.
I’m hard pressed to think of a single part of this whole city hall, ball park mess that has been handled properly.
We deserve better
Brutus
elpasospeak 
Some organizations, like churches, often sell bonds to the members of their congregations, an approach which has numerous benefits. Those who support a project are more likely to buy bonds at a reasonable, but not egregious interest rate. If as stated a key goal of the ballpark was to instill community pride and if the ballpark indeed had broad support, I can’t help but wonder why the city didn’t consider financing at least part if not all of the ballpark project through a local bond offering.
The city has been promoting this project as a model of public/private partnership. Well, the city could have also worked in “partnership” with Mountainstar to offer bondholders some special perks, including special preference in the purchase of season tickets.
Several years ago, the Borderplex Community Trust REIT raised $30 million from local investors wanting to invest in downtown redevelopment. One would think that the same people who invested in the REIT would have wanted to “invest” in the ballpark. The ballpark bonds could have appealed to an even larger investor base because the minimum investment would have been lower than that of the REIT. All the people who own property and businesses downtown and who will benefit most from the ballpark would have surely stepped up. Right? (If not, what does that tell you?) Young people who have so vocally supported the ballpark could have even bought bonds to feel truly invested.
Who knows? Maybe the Mountainstar owners would have bought a few bonds. After all, that would be one more way for them to make money off this whole deal. Truth be known, the Mountainstar principals could have bought a big chunk of the bonds (which pay interest, mind you), and their friends and wannabees would have lined up to buy the balance just to endear themselves to the big guys.
But why would city management do that, which might have saved us some money, when they can take the easy way out and use more taxpayer money to endear themselves to bankers. Go figure.
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Outstanding!
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actually, borderplex is selling their shares of downtown properties. i guess steve not being elected along with chozet made them see that they dont have enough puppets on city council anymore.
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I’ll just throw the answer out there so no more guessing takes place. Those running for office at the time the bonds were supposed to be sold (or should have been sold) likely asked that the sale take place after the election just in case this scenario played out. You’ll notice a ton of stuff has happened post election that was likely known before the election.
Much like congress does in an election year, local politicians try to clear their plate of controversial legislative matters before the voters head to the voting both.
This is a case of a courtesy meeting bad luck (Detroit) and creating a big, expensive problem.
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Interesting point. So to put it another way, the political agendas of a few cost all of us even more money.
I do, however, think we’re all being snookered with the “Detroit excuse”. Generally speaking, after initial market tremors the municipal bond market calmed down.
As reported in the DETROIT FREE PRESS today, even Oakland County, which is the Detroit market, is moving ahead next week with a huge bond offering which is not expected to carry a “Detroit penalty” on the interest rate to be paid.
Detroit is an easy “out” for local politicians and city management to use because most people will not take time to really analyze the situation and consider what level of impact Detroit really had on our bond offering. If the bond offering was delayed for the non-Detroit reasons you suggest (and I think you’re probably correct), then those involved are both unethical, incompetent, and untrustworthy; and some folks in city management should be fired.
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http://dealbook.nytimes.com/2013/08/08/detroit-blocks-other-cities-from-bond-market/?ref=todayspaper&_r=0
Check out the link – it says Detroit’s neighbors are all having trouble selling their muni bonds because of the bankruptcy filing. So – yes it did impact El Paso’s bonds too.
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So, a bond prospectus that already discloses voter dissatisfaction over the stadium and a climate of local corruption does not disclose that the city has spent megabucks trying to stonewall a TORA request for emails pertaining to the bond issue’s purpose. Is that correct?
What fiducuary is nuts enough to buy those bonds?
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That Detroit talking point out by the oligarchs’ and sycophants’ girlfriend Joyce is bull caca. There is something called a debt rating and it is based on an analysis of the city’s overall financial position. Experts conduct those analyses, especially these days after they were caught bulshitting after the 2008 financial crisis. Detroit’s rating and the factors that are the underpinning of it’s more miserable than junk status are simply not the case of debt issuances by municipalities with better financial positions. El Paso’s abysmal standing as far as this boondoggle of a ball stadium is attributable to the details that Fitch addresses, others contained in the prospectus and the sad state of affairs surrounding this project, and which have left quite the public record behind.
The Fitch report is not only spot on, it clearly, and without emotion or spin, lays out the truth which is that this city is putting itself in a very precarious financial position by taking on all that debt. It will require careful and wise management, something which is lacking in this city, or at least if run by wise managers, it is wise managers with no sense of ethics other than to serve themselves and very narrow financial interests.
And notwithstanding what Fitch and other credit rating organizations say, the smart investors who have big bucks to invest, read a prospectus, analyze and understand what the real scoop is, sans the hype. Many probably also read up on the city and know that there is much, much more that the city failed to include in that prospectus such as litigation to hide its communications that may contain negative information about that major infrastructure project. Even if there is nothing shady, they are giving the appearance of very shady dealings and it serves to spook away many people from risking their money when such a sad cast of characters are involved.
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