As you will recall, in a previous post I attempted to dissect the city’s bond documents called the “Preliminary Official Statement”. This document, basically, is a loan document explaining to the investors how they will be paid by the city. As you will also remember, the city had to go back to city council and ask for authority to increase the interest fees it would pay for the bonds. This action resulted in the taxpayers having to pay an additional $17 million for the ballpark.
Because of that action, the city had to revise its “Preliminary Official Statement”. The original one I profiled was dated June 27, 2013. That document had 220 of the most boring pages I have ever had to read in my life. The latest version is now 232 pages and is dated August 13, 2013. Obviously, the city had to add additional information, but what was it? I will be honest with you; I could not bring myself to actually read the entire 232 pages word-for-word, so I scanned it looking for differences between the two.
Guess what I found?
More proof that the baseball fiasco is just getting worse for the taxpayers of El Paso.
In a new section titled “Certain Projected Sources of Revenue” the city goes on to elaborate on the “Additional Tax and Team Payments” for the ballpark. Plain as day light, the city clearly tells the investors that it will have to make up the difference between what it collects from the HOT tax and the team payments in order to make the payments the first six years of the project.
That’s right; the city will not have enough money from the ownership payments and the hotel taxes to make the payments for the first six years.
In fact, the city will have to pony up almost $1 million from its sales tax revenues to make the first six years of payments. Add to that the additional $17 million in increased cost because of the higher interest rates and the taxpayers are now $18 million more in debt.
According to the Offer Statement, I reviewed; the city proposes using sales tax revenues and other “unencumbered funds” to offset the shortfalls in debt service to fund the ballpark.
The city acknowledges that it will have to add $975,372 from the city’s other revenue funds in order to offset the shortfall.
According to the document, page 13, the city will pay $188,885 in 2014, $303,052 in 2015 and $142,356 in 2017. A total of $116,805 will be paid in 2018 and 2019.
The document goes on to state the following: “The City reasonably believes that the Project will generate additional sales tax revenues which would not have otherwise been collected by the City. To the extent that revenues from the Additional Tax and Team Payments are not sufficient to pay the Lease Payments, the City is planning on using such revenues, as well as other lawfully available funds, to pay the Lease Payments, subject to annual Appropriation. Revenues from ad valorem taxes are not lawfully available to support the Project. Although the Total Projected Revenues and revenues directly associated with Project development may exceed the amount of projected debt service, the City anticipates that in certain years it will have to Appropriate money from other lawfully available funds which are not related to the Project to pay the Lease Payments. The Lease Agreement provides a method by which the City may reimburse itself for any such payments.” (Page 13)
Let’s dissect that language for a moment.
The city is telling the investors that it hopes to make extra sales tax revenues from the ballpark activities. If those revenues are not enough then the city will make payments from other revenue sources the city has.
The city goes on to add that property taxes cannot be used to pay the ballpark bonds, but it goes on to state that it will appropriate funds from other sources to meet the debt obligations.
Here is what the city is saying between the lines; although we cannot use property taxes, we can use other monies from our general funds. Therefore, if we play the “rob Paul to pay Peter” financial game, we’ll use monies allocated for other projects and then raise property taxes to offset the losses on the other project we raided funds from.
In addition to this, the city is already admitting it won’t generate enough to make the payments from 2014 until at least 2019.
Additionally, in a new section titled; “Certain Projected Sources of Revenue” the city adds a table setting forth “certain estimates of the Additional Tax and Team Payments”.
The document states; “The Projected Additional Tax revenue numbers assume that such tax will grow at a rate of three percent (3%) annually over the period shown. Since 2003, the City’s year-to-year change in its general HOT collections have ranged from a high of approximately 25.7% to a low of approximately -2.8% with the average percentage change being approximately 8.5%. Historical collections of the City’s general HOT are not necessarily indicative of future collections of the Additional Tax. For 2013, the City’s collections of the Additional Tax have been on pace to meet the projections set forth below.”
With those numbers being touted about by the city, the three percent annual increase would seem reasonable to any investor especially comparing the average of 8.5%. The problem with those numbers is that the investor would not be aware that two major city events were ongoing during that period that could possibly have created a need for hotel rooms.
Part of it was major construction at Fort Bliss that brought in contractors, workers and others to work on and support the construction. That construction is now completed and to my knowledge, there is no new construction at Fort Bliss in the immediate horizon.
In addition, it is important to remember that during that period, the ongoing Drug War in Juárez saw an unnatural influx of citizens of Northern Mexico setting up temporary quarters in the local hotels. That source of hotel revenues has dried up as those who were making El Paso home have found permanent living quarters and the rest have returned to their original homes or moved on.
For the investors, the city is clear that it will take care of them. Unfortunately, this means that the taxpayers’ of El Paso will have to shoulder the debt. What is worse is that the city is now acknowledging that its own best-case scenario predictions show that the hotel taxes and the team payments will not be enough to make the payments during the first six years.
What will happen to the taxpayers if the best-case scenario does not come to be?