Muni Credit News April 16, 2015

Joseph Krist

Municipal Credit Consultant


The upcoming NFL draft has focused most attention and interest on who will be playing where next season. Based on recent performance, fans of the St. Louis Rams should be focused on player personnel issues but instead the primary issue is how long will they have a team to root for. Last month, NFL Commissioner Roger Goodell announced that the league was accelerating its efforts to move a team to Los Angeles. St. Louis Rams owner Stan Kroenke, with land in Los Angeles and a fully developed construction proposal, is a frontrunner in the race.

It has been pretty well established that the financing of professional sports facilities with public funds has generated questionable returns on that investment to the taxpayers of the entities backing those projects. Nonetheless, Missouri Gov. Jay Nixon’s two-man stadium task force has been working for months to solidify financing and sidestep project-killing delays before presenting plans for a $985 million riverfront stadium to a National Football League owners committee this spring.

The plans have been controversial and it is unclear that local residents would support such investment, especially in the City of St. Louis. There has been significant pressure to submit the question to a public referendum. In response, the public body that owns and operates the Edward Jones Dome filed suit Friday against the city of St. Louis, seeking to avoid a civic vote on the use of taxpayer money for a new downtown football stadium. Filed in state court, the suit claims that a 2002 city ordinance requiring a public vote is “overly broad, vague and ambiguous.” The suit seeks a ruling that the ordinance either does not apply, conflicts with state statute or is unconstitutional.

The suit is complicated by the fact that the City and State political establishments have been working together to build a new stadium. At the same time, the city counselor has a responsibility to vigorously defend all the laws of the city. City of St. Louis residents voted in favor the ordinance in 2002 by nearly 10 percentage points — 55 percent to 45 percent. St. Louis County voters approved a similar measure two years later, 72 percent to 28 percent. Approved as a municipal ordinance in the city and a charter amendment in the county — the two laws prohibit any “financial assistance” from the city and county to a professional sports facility without voter approval. They define “financial assistance” to include tax reduction, tax-increment financing, land preparation, loans, donations, payment of obligations, and the issuance, authorization, or guarantee of bonds.

The initial plans for the stadium included up to $450 million from the NFL and team, $130 million in personal seat licenses, some tax incentives and as much as $350 million through a “bond extension.” To support debt issued for the current stadium, the state sends $12 million a year to the authority which operates the existing Edward Jones Dome. Those funds amortize construction bonds and cover upkeep on the stadium. The city and county each send $6 million.

Now the political winds may be changing. St. Louis County Executive Steve Stenger has said that the Governor is no longer looking to funding from the County.  The lawsuit spells out the city’s now-expanded role in a new facility. According to the new filing the city will issue new bonds, which will pay off the city’s debt on the existing stadium as well as provide funding for construction of the new stadium. Debt service, the suit says, will not exceed the $6 million a year in current payments. The city also will donate land to the project, and provide tax-increment financing or creation of a transportation development district or community improvement district.

The Governor and Jim Shrewsbury, the Nixon-appointed Dome authority chairman and former city aldermanic president said that they didn’t think “another public vote” was required. Dome authority attorneys agree. Ten of the authority’s 11 board members at a meeting in January unanimously passed a resolution that allowed the authority chair to hire contractors and file suit on behalf of the board. The Mayor of St. Louis has not taken a public position on the financing but has written to city aldermen, promising to “vigorously defend the validity of our ordinance” and, whatever the outcome, follow the law. Confusing many, the  letter went on to describe plans to continue the City’s $6 million annual payments beyond the current debt expiration in 2021.

We are of the view that the stadium backers should follow the route taken by MLB’s San Francisco Giants and the owners of the NFL’s Jets and Giants and privately finance a new stadium. That is not to say that provision of land is out of the question. But the use of limited tax revenues and borrowing capacity for a private benefit facility like this is not the way to go.


The recent announcement by Moody’s that it has upgraded the rating on the Sacramento Municipal Utility District’s (SMUD) outstanding $1,873,105,000 electric revenue bonds to Aa3 from A1 and the rating on the $347,850,000 subordinate lien revenue bonds to A1 from A2 with a stable outlook completes a long journey on the road to credit recovery.

June 7 will mark the 16th anniversary of the vote to close the Rancho Seco Nuclear plant after a failure of power supply for the plant’s non-nuclear instrumentation system led to steam generator dryout which the NRC called the third most serious safety-related occurrence in the United States at a nuclear generating plant.

In supporting the upgrade Moody’s cited timely rate-setting as an unregulated utility with no revenue transfer requirement to city or regional governments; effective risk management program; improved financial metrics; the strong competitive position against regional peers; the improvement in the diverse local area economy; and the sourcing of 26% of renewable energy for retail load while maintaining competitive prices. Ironically, the forced closing of Rancho Seco may have been a long-term blessing in disguise for SMUD given California’s aggressive stance towards renewable energy. For example, California contemplates ramping up the renewable power standard to 50% by 2030.

SMUD may need to incur incremental capital expenses for a potential major pumped storage facility that would be used to help manage intermittent power flows owing to the state’s increased reliance on renewable energy. SMUD’s leverage ratios reflect a much more favorable debt profile, Any new capital spending is expected to be funded significantly from internal sources and the cost of construction of a pumped storage facility could be shared with area utilities.


Treasury Secretary Juan Zaragoza Gómez announced that General Fund revenues totaled $838.6 million in March, up by $53.5 million from March 2014. The 6.8% year-over-year increase is the highest increase registered during the past eight months. corporate income tax revenues were $104.8 million; this figure was up $36.2 million from March 2014 and $22.4 million above estimates. In addition, the Treasury Secretary pointed out that corporate revenues have not exceeded $100 million for a month of March since 2007. Individual income tax collections exceeded March 2014 collections by $22.0 million, a 13.2% increase.

Foreign corporation excise tax (Act 154) revenues were up by $57.9 million, or 40.5%, year-over-year. Alcoholic beverages and tobacco products collections increased by $1.3 and $1.4 million, respectively. In March, Motor vehicle excise tax collections, which have registered consecutive double digit percentage reductions throughout the fiscal year-to-date, registered the smallest reduction ($1.7 million, or 5.6%) in the last 9 months. The Treasury Secretary announced that fiscal year-to-date revenues total $6.0 billion, which is $153.2 million, or 2.5%, below estimates.


Efforts continue to work out PREPA’s debt troubles as bondholders have offered to extend their forbearance agreement with the utility for another 30 days. The offer includes a mutual commitment to continue working together on the refinement of a capital investment and rate plan, a timeline for PREPA agreeing to a work production plan and outside review of the work plan and information exchanges between the parties with provisions for public review. The news came as the PR legislature held hearings with the lead witness being the Authority’s Chief Restructuring Officer. Increasing frustration is being expressed by all sides at the slow pace of negotiations and the market impact of such a significant cloud of uncertainty. The authority’s chief restructuring officer, Lisa Donahue, told the commission she will present a first draft of a restructuring plan by June 1.

Those concerns are reflected in an increasing and more frequent Federal presence on that part of various U.S. Treasury officials who have been seen in more frequent meetings with Commonwealth financial officials. This reflects potential roadblocks emerging in the effort to reliquify the GDB with one report indicating that A group of hedge funds is demanding that as one condition of lending $2.2 billion to Puerto Rico, lawmakers must balance its budget for the long haul or agree to be found in default if a gap emerges. This would be a heretofore unseen requirement in the municipal market. During a local radio interview early Wednesday, GDB President Melba Acosta admitted it will be difficult to go to the market in the near future as tax reform, the fiscal year 2016 budget proposal and the situation at the Puerto Rico Electric Power Authority, among others, converge.


The Metropolitan Water District, which sells imported water to more than two dozen local agencies serving 19 million people in Southern California, voted Tuesday to reduce regional deliveries by 15 percent as the state grapples with a fourth year of drought. The board will revisit the issue in December. Cities that want to buy more water will have to pay penalties of up to four times the normal price for extra deliveries.

Moody’s has weighed in with its view that the governor’s executive order imposing water use restrictions to achieve 25% statewide reductions is overall credit negative for the state’s water utilities. It is their view that the utilities have little time to increase rates and fees to promote conservation, and the mandated conservation will reduce operating revenue. The fiscal impact will be to reduce the sector’s debt service coverage and reserves.

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