A Ball­park At Mercy Of Tax Bill

The Bond Buyer - - Front Page - BY RICHARD WIL­LIAMSON

DAL­LAS – A $1 bil­lion re­tractable-roof ball­park for Ma­jor League Base­ball’s Texas Rangers could fall vic­tim to Con­gres­sional tax re­form plans.

Un­der plans un­veiled Thurs­day by House Repub­li­can lead­ers, bonds for pro­fes­sional sports sta­di­ums would no longer be tax-ex­empt, and pri­vate ac­tiv­ity bonds would be for­bid­den. Those are among pro­posed changes in tax law that would have a ma­jor im­pact on the mu­nic­i­pal bond in­dus­try.

If ap­proved, the pro­vi­sion could im­pede the city of Ar­ling­ton’s plans to is­sue up to $500 mil­lion of sta­dium bonds ap­proved by vot­ers in 2016.

“When the vot­ers voted on this project, the ex­pec­ta­tion was that the bonds would be tax-ex­empt,” said city of Ar­ling­ton spokesman Jay War­ren. “That was what the rules were at the time.” War­ren said the city be­lieves bonds for the sta­dium could still be is­sued but would be tax­able.

The city had planned to is­sue bonds early next year. The city’s agree­ment with the Rangers calls for clos­ing on spe­cial tax rev­enue bonds by Sept. 30, 2018, with plans to open the sta­dium for the 2020 sea­son.

Ac­cord­ing to the con­gres­sional Joint Com­mit­tee on Tax­a­tion’s sum­mary of Repub­li­can pro­pos­als, the ban on tax-ex­empt sta­dium bonds would af­fect any bonds is­sued af­ter Nov. 2, 2017. Thus, Ar­ling­ton has no way to beat the clock if the leg­is­la­tion passes in­tact.

“There are a lot of stan­dards that have to be met be­fore we can is­sue those bonds,” War­ren said. “We are watch­ing what’s hap­pen­ing in Washington D.C., clearly. It’s got to pass the House first, and it’s got to pass the Se­nate. There are lots of ‘ifs’ and lots of steps. We hope to be a par­tic­i­pant in the con­ver­sa­tion.”

The Ar­ling­ton City Coun­cil will hear from rep­re­sen­ta­tives of its Washington lob­by­ing firm at

its meet­ing Tues­day, where the im­pact of the tax proposal on sta­dium bonds could be dis­cussed, War­ren said.

But the city’s chance to be heard on the sub­ject could be lim­ited. Repub­li­can lead­ers, in­clud­ing House Ways and Means Com­mit­tee Chair­man Kevin Brady, R-Texas, said they plan to have the ma­jor tax over­haul signed into law by Christ­mas. With Congress out of ses­sion the week of Thanks­giv­ing, that al­lows less than six weeks for pas­sage com­pared to the 16 months that Congress took to pass the 1986 tax re­form.

Ar­ling­ton’s Con­gres­sional Rep. Joe Bar­ton, a Repub­li­can, has not said where he stands on the leg­is­la­tion, but told CNN that the is­sue of end­ing tax breaks is go­ing to cause “an­guish.”

“Every­body is for lower rates, but in or­der to pay for it, then you have to close loop­holes and elim­i­nate de­duc­tions. Or, cut spend­ing,” said Bar­ton, who in 1986 voted for the last re­write of the tax code. “And that is where it gets more dif­fi­cult. Ul­ti­mately, each mem­ber has to de­cide what is the right thing to do.”

Rep. Blake Far­en­thold, R-Texas, in­tro­duced a mea­sure in Septem­ber ti­tled the Prop­erly Re­duc­ing Overex­emp­tions for Sports Act, which would also end tax-ex­empt sta­tus for pro­fes­sional sports teams.

“Pro­fes­sional sports leagues should not be ex­empt from pay­ing taxes,” Far­en­thold said in a pre­pared state­ment. “Th­ese are highly prof­itable busi­nesses that make tens of mil­lions of dol­lars each year and have been ex­ploit­ing loop­holes to game the sys­tem. It’s time we blow the whis­tle on this foul, and get this bill over the goal line.”

Although Congress elim­i­nated a pro­vi­sion ex­pressly al­low­ing tax-ex­empt fi­nanc­ing for sports fa­cil­i­ties in the 1986 tax re­form, lo­cal gov­ern­ments and their pro­fes­sional sports teams found ways to cir­cum­vent the two-part test for pri­vate ac­tiv­ity bonds, which are tax­able.

Roughly $8.5 bil­lion in sta­dium bonds are out­stand­ing, ac­cord­ing to Mu­nic­i­pal Mar­ket An­a­lyt­ics.

A 2016 Brook­ings In­sti­tu­tion re­port found that out of 45 pro­fes­sional sta­di­ums built since 2000 for pro foot­ball, base­ball, bas­ket­ball and hockey, 36 were funded, at least in part, with fed­eral tax ex­pen­di­tures in the form of tax-ex­empt mu­nic­i­pal bonds.

“We es­ti­mate that the to­tal tax-ex­empt bond prin­ci­pal is­sued to fund th­ese sta­di­ums was ap­prox­i­mately $13.0 bil­lion, the present value sub­sidy to the bond is­suers was $3.2 bil­lion (as­sum­ing a 3% dis­count rate) or $2.6 bil­lion (as­sum­ing a 5% dis­count rate), and the present value fed­eral tax rev­enue loss was $3.7 bil­lion (3% dis­count rate) or $3.0 bil­lion (5% dis­count rate), with all terms in 2014 dol­lars.

Lo­cal gov­ern­ments have in­ten­tion­ally struc­tured the tax-ex­empt bond is­suance and re­lated trans­ac­tions so that rev­enues back­ing the debt do not come from the teams. That means that the sec­ond part of the PAB test – that pri­vate rev­enues pro­vide debt ser­vice – fails.

In Ar­ling­ton’s case, the Texas Rangers would pro­vide about half of the sta­dium fi­nanc­ing and be re­spon­si­ble for cost over­runs. The city would pledge a por­tion of taxes on ho­tels, rental cars and other ser­vices to pay off the bonds.

Vot­ers in 2016 ap­proved a half-cent sales tax, 2% ho­tel oc­cu­pancy tax and 5% car rental tax to pay off those bonds over 30 years. The bal­lot mea­sure in­cluded a 10% ticket tax and park­ing tax of up to $3 at the new sta­dium.

To fi­nance the Rangers’ new sta­dium, Ar­ling­ton had to re­struc­ture its out­stand­ing debt for the $1.3 bil­lion Dal­las Cow­boys AT&T sta­dium that opened in 2009 near the Rangers’ ex­ist­ing Globe Life Park sta­dium. Ar­ling­ton is­sued $337 mil­lion of tax-ex­empt bonds for the sta­dium backed by the so-called “tourism taxes” on ho­tels, rental cars and sta­dium fees.

The city con­sid­ered two sce­nar­ios to al­low for is­suance of new spe­cial-tax bonds for the Rangers’ sta­dium: pay­ing off the Cow­boys sta­dium bonds early or ex­tend­ing ma­tu­ri­ties by seven years. The city de­cided to ex­tend ma­tu­rity of the Cow­boys’ bonds, low­er­ing an­nual debt ser­vice suf­fi­ciently to al­low is­suance of new bonds for the Rangers sta­dium.

Work­ing with the city on fi­nanc­ing the ball­park is David Gor­don, man­ag­ing director at fi­nan­cial ad­vi­sor Estrada Hi­no­josa & Co. Estrada has played a role in fi­nanc­ing many of the re­gion’s sta­di­ums and are­nas.

The $110 mil­lion ad­vance re­fund­ing of the Cow­boys debt pro­duced cash-flow sav­ings of more than $31 mil­lion and net present value sav­ings of $18.8 mil­lion or 5%, ac­cord­ing to the fi­nance team. The bonds were rated A1 by Moody’s In­vestors Ser­vice, A-plus by S&P Global Rat­ings and AA-plus by Fitch Rat­ings. Un­der the Repub­li­can tax bill, ad­vance re­fund­ings would also be dis­al­lowed.

An­nounce­ment of the Repub­li­can tax proposal came one day af­ter Ar­ling­ton of­fi­cials broke ground on a $150 mil­lion Loews ho­tel that ties in with the new Rangers sta­dium and an area that has been de­clared the Ar­ling­ton En­ter­tain­ment District. Known as Texas Live!, the district is said to rep­re­sent $250 mil­lion of de­vel­op­ment.

The ho­tel is sited be­tween the Rangers ex­ist­ing Globe Life Park and the Cow­boys’ AT&T Sta­dium.

With the new Rangers sta­dium un­der con­struc­tion nearby, Globe Life Park will be pre­served for some fu­ture use, ac­cord­ing to the city. ◽

For more con­tent about this re­gion, visit the Re­gional News tab on Bond­Buyer.com.

Ar­ling­ton

Plans call for tax-ex­empt bonds to fund a new Texas Rangers ball­park in Ar­ling­ton to an­chor the Texas Live! en­ter­tain­ment district.

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