elpasospeak

How are we doing with the Hotel Occupancy Tax (HOT) collections that are to be used to pay for the bonds that we have issued to build the ball park?

2 percent growth

On June 26, 2012 the city’s chief financial officer made a presentation to city council that assumed a 2% growth per year in HOT revenue.

I’ll see your two and raise you to three

Then on October 29, 2012 the city’s chief financial officer made another presentation to city council that assumed a 3% growth.

Remember that at that time the ball park was still supposed to be a $50 million dollar facility.  The first $10 million over-run did not become public until May, 2013.

Bad gamble

The numbers for the first six months of 2013 show the HOT revenue down almost 1% from 2012.

HOT revenues have declined, not increased 2% much less the 3% she presented. The city will probably have to make up the shortfall with general fund revenues which primarily come from sales taxes.

I’ll see your three and raise you to 4.3

The 2014 city budget anticipates a raise in sales tax revenue of 4.3%.

The state has only posted the numbers for January through March at this point.

Those numbers show a 2.5% increase, not the 4.3% that the city needed to balance the budget before the HOT shortfall.

We deserve better

Brutus

It probably is not fair for me to think that we will be taken advantage of again before a deal goes bad.  For my part I guess that I can’t help it since it happens so frequently.

We recently learned that a local developer and former city alderman wants to build a $17 million dollar Marriott right next to his Hilton Doubletree hotel.  His Hilton might turn out to be the biggest beneficiary of the new ball park.

The developer already operates a hotel downtown that has received tax breaks from us.   Insider’s club was about how our most recent former mayor tried to lobby for the developer in spite of a city ordinance prohibiting him from doing so.

Now the developer has come forward and publicly stated that he wants to build a $17 million dollar hotel right next to the one he already has.  I believe that they would then be the two closest hotels to our new ballpark.  He will need $3 million dollars in concessions from local government.  The concessions will need to be “virtually identical” to the ones his other hotel received.

His other hotel received concessions and a contract was executed.  Then the developer came back to city council and claimed that the contract was too stringent — he needed relief.  My recollection is that he got it.  Then as I recall he came back to city council again and needed more relief which council dutifully gave him.  This is the classic two step we see frequently in town.  Start with one set of promises and then change them once you have gotten what you want.

Nothing certain

The developer is in negotiations with the city.  We are told that the hotel will be a Marriott, he will spend $17 million to build it,  that it will have 140 guest rooms, and that it will have a 90 space parking garage.

Given past history we might wake up one morning and find that it is not a Marriott, that the cost was not $17 million, that it does not have 140 guest rooms, and that there is not parking garage.  What it will have is whatever turns out to be most advantageous to the developer regardless of was promised in order to get the tax concessions.

Competing with ourselves?

There is already a Marriott in town, located near the airport.  Is El Paso a large enough market to support two?  I hope so.  Will a new one take business away from the existing one?  Would that put us in a position where the existing Marriott has less business and thus pays lower taxes?  I hope not.  The developer says that no market study has been done.

The existing hotel does not contribute to the Hotel Occupancy Taxes that are being used to finance our new ball park even though it looks like the hotel will be biggest beneficiary of the construction.

This sentence comes from the 2005 staff report to city council:

Approximately 75 percent of the projected Hotel Occupancy Tax revenue is to be derived from business shifted from other El Paso hotel properties.

We deserve better

Brutus

These articles from out of town sources paint a different picture of our ballpark situation than we get to see locally.

Not a pretty picture

This section from Bloomberg talks about the financial situation:

El Paso, Texas, which is cutting police overtime and holding some jobs vacant, will have to spend an extra $17 million on bonds to finance a minor-league baseball stadium after an initial attempt to sell the debt failed.

Goldman Sachs Group Inc. (GS) took over marketing of the debt this month after the mayor said Morgan Stanley (MS) couldn’t find buyers when interest rates were lower in June and July. The delay, during a period when local-debt yields reached the highest since 2011, means higher interest costs for the municipality of about 673,000 across the Rio Grandefrom Mexico, William Studer Jr., deputy city manager, said in an interview.

El Paso plans to use a higher hotel tax and general funds to help pay the debt. It joins localities from North Carolina to Oregon building sports venues to spur their economies. The ventures don’t always pan out, leading buyers to penalize the issuers. The city-formed development agency last week sold 25-year tax-exempt bonds to yield 5.95 percent, compared with about 5.05 percent on 30-year revenue debt with a similar rating, data compiled by Bloomberg show.

“It’s a lot of money they are having to pay out due to the risk involved,” said Lin Elliott, who oversees about $1 billion as investment manager at Texas Farm Bureau Mutual Insurance Co. in Waco. The bureau prefers holding bonds to maturity and wouldn’t buy debt for a minor-league franchise that may not last 30 years, he said.

Crap shooting with our money

An article in Governing talks about the gamble the city took with our money — and lost.

As it intends to do with most of the bond projects, the city broke ground on the new stadium in April by fronting its own money with plans to issue the bonds for the project soon after… El Paso offered its $63 million in revenue-backed stadium bonds the first week in July.

It was not good timing.

“It was sort of if anything could go wrong it did,” Wilson said. “Standard & Poor’s rated our [nontaxable bonds] double-A minus, which is pretty good. But when Detroit defaults on $18 billion subject-to-appropriation debt, all of a sudden everybody looks at the muni market a little differently.”

Faced with no takers, El Paso was forced to find another underwriter for the bonds and the council begrudgingly approved raising the interest rates on the offering. The limit was raised to 6.5 percent from the original 5 percent cap on the $48.7 million of tax-exempt debt, and to 7.25 percent from 5.75 percent for the $12.1 million taxable portion. The moves will cost the city an additional $17 million in debt repayments.

Speculating on a questionable deal

It was “the worst possible time to bring a speculative deal,” said Municipal Market Advisors analyst Matt Fabian, adding especially when the value of a minor league baseball stadium to El Paso is “questionable.” This summer, El Paso found a municipal market that had flipped 180 degrees from a seller’s market to a buyer’s market with little time to wait for a more favorable turnaround.

“You really never want that,” Fabian said. “You don’t want the issuer to be forced to sell – you never know what market conditions you’ll find and it was a very aggressive action on their part.”

They refused?  What kind of contract did you sign?

Again from Governing:

Wilson said the city could have waited out the commotion and issued the bonds this fall but “it didn’t seem prudent to do so because predictions are that rates will continue to rise.” She added that, in her view, “our lead underwriter was not as effective as they could have been and took us out twice in early July with no success and then refused to purchase the bonds when they couldn’t culminate the sale.”

Untempered

In any event, the complications have not tempered El Paso’s aggressive attitude as the city plans to issue more bonds at least twice this fall and again in the spring.

What part of this deal has been done well?  If we are going to take on projects like this we should at least manage them competently.

We deserve better

Brutus