The conservative approach the Las Vegas Stadium Authority took toward retiring bonds to pay for stadium construction is paying off in the new era of coronavirus fear.
Stadium Authority staff members are monitoring an expected drop in room tax collections resulting from people canceling their visits, conventioneers passing on trade shows and the reduction of room rates corresponding to the need to boost demand.
“Obviously, industries such as tourism are acutely impacted by concerns surrounding the novel coronavirus or COVID-19,” said Jeremy Aguero, principal for Las Vegas-based Applied Analysis, which serves as the staff to the Stadium Authority.
“From a room-tax perspective, we are monitoring it,” he said. “I think there is an expectation that over the next two to three months there will be a material impact on room-tax collections, the extent of which is unclear at this moment. But we know that there will be a negative impact associated with that. Those collections obviously will impact revenue available to the Stadium Authority board.”
The same is true for bond repayments for the $1.5 billion Las Vegas Convention Center expansion and renovation project.
Expansion in good shape
Las Vegas Convention and Visitors Authority President and CEO Steve Hill, who also chairs the Stadium Authority, said that, while funded differently, bond payments for the LVCVA project also are in a good position.
“We have three times as much revenue as we need to make bond payments once we have borrowed all of the money for all of the project,” Hill said. “And, we have reserves set aside. We’re in the same bottom-line situation as the stadium. The ability to pay the bonds back for the stadium and the convention center are at the bottom of what anybody should worry about. It’s just not going to be an issue.”
In the first six months of the 2019-20 fiscal year, the portion of room tax collections allocated toward the state’s $750 million public commitment to stadium construction reached $24.9 million, 6.3 percent more than was collected in the same time frame a year earlier. Hill remarked at the LVCVA board meeting Tuesday that room-tax collections hit record levels in five of the past eight months.
The stadium construction subsidiary of the Las Vegas Raiders has three other revenue sources for the $2 billion Allegiant Stadium, due to open in August: $478.3 million in personal seat license revenue, a $541.7 million line of credit from Bank of America, and $200 million from the National Football League’s G-4 credit facility.
Collections began on a 0.88 percentage-point increase in Clark County’s variable rate room tax in March 2017. The room tax ranges from 10 percent to 13 percent based on a resort’s location.
Since the new tax was initiated, $140 million has been collected by Clark County, which is right around the amount estimated. Collections are expected to grow over time based on increased room inventory, stronger average daily room rates and higher occupancy rates.
But for now, the coronavirus has put a damper on that.
Reserve fund ready
Aguero said that because the Stadium Authority agreed to a conservative collection approach in which revenue was dedicated to a reserve fund first, he has no doubt bonds will be paid off as scheduled.
“In terms of the ability to make bond payments, not only was the Stadium Authority board relatively conservative in its estimates of room tax, but it also has about a year and a half worth of reserve revenue set aside to ensure that the bond payments are made,” he said. “Even if the room tax was essentially to drop to zero for the next year — which no one expects, I want to be very clear about that — there would still be revenue available to make those bond payments.”
Based on what he’s seen in previous downturns resulting from disease outbreaks, terrorism events and natural disasters, Aguero is confident of a bounce-back, but it’s all a matter of how long it will take.
“We’ve been through enough of these cycles that we sort of know what to expect,” he said. “That’s why I am very concerned about the sort of second wave of this challenge, which will be an economic one and a fiscal one. Our community’s going to have a difficult time over the next two to three months if this current trend that we’re seeing right now doesn’t sharply deviate from its current course.”
Ups and downs inevitable
Hill said that over the length of the 30-year payback period, ups and downs in tax collections are inevitable.
“The structure of the bonds for the stadium were set up to withstand a recession that was as deep as the last one we had, which was the worst one we’ve had in 67 years,” Hill said.
The authority only needs a little less than two-thirds of the anticipated revenue in order to make bond payments, and it has a requirement to set aside two years of debt service reserve over the first four or five years of the project, he said.
”We have a year and a half set aside already, so we could go for a year and a half and not have a single penny of revenue and make bond payments. That’s obviously not going to happen,” Hill said. “Of all of the issues the community has to think about, paying back the bonds on the stadium should be at the bottom of the list.”
As for the bond payoff for the convention center project, Hill is just as confident.
“We have a good deal of reserves set aside as well at the LVCVA, but we also have flexibility in how we spend our money,” he said. “So the board requires that we have a three-times-coverage ratio, so we have to generate at least three times the revenue that we have in payments that have to be made and we’re doing that.”