In an effort to persuade Moody’s investment rating agency from downgrading its bonds to junk status, the Harris County Sports Authority voted to issue $37.2 million in new bonds this week to cover the ongoing cost financing the building of Minute Maid Park, Reliant Stadium and Toyota Center in Houston over the past five years. The three sporting venues cost $1.036 billion to build — Reliant Stadium cost $500 million, Minute Maid Park, $286 million, and Toyota Center, $250 million. With the bond issuance, the price tag has now risen to $1.073 billion.
I have always been fascinated with this type of reasoning regarding investment: “In order not to allow the interest rate on our existing highly-leveraged bonds to rise, let’s go ahead and issue some more highly-leveraged bonds.” H’mm.
At any rate, the new bonds were needed to make up for declining hotel and car rental tax revenues, which services bond debt. In 2002 and 2003, the revenues sagged by approximately 10 percent. To meet the annual payments for $900 million in previously issued bonds, the authority had projected annual 3 percent increases in hotel and car rental tax revenues. During the past two years, the tax revenue generated by the special taxes has declined about 5 percent each year, which means that the sports authority missed its projections by close to 8 percentage points during each year.
The Sports Authority was facing penalties if it failed to fulfill its agreement to replenish its cash reserve fund from $32 million to $47 million by May 2006. With hotel and car rental taxes declining, the Authority was not going to be able to raise the money unless it issued the bonds. About $15 million of funds generated from the new bonds will be added to the cash reserve fund.
Paul Bettencourt, Harris County tax assessor-collector, was skeptical about the public financing of the stadiums at the time that each was approved. “It’s just three, four, five years after the elections, and already they’re selling more bonds,” he said. “This is a big concern to me, and it should be to taxpayers.”
I am hopeful that that Professor Sauer, who comments regularly on the follies of public financing of sports stadiums, will have his usual keen observations on this development.