Miami-Dade preparing to play ball in the bond markets
By Risa Polansky
In the world of Major League Baseball, April means opening day.
And in Miami-Dade County, this month marks also the beginning of the bonding process for a new retractable-roof stadium for the soon-to-be Miami Marlins.
County commissioners OK'd the $633 million-plus ballpark construction project last week.
Tuesday, they'll be asked to approve a handful of procedural measures that will allow administrators to play ball in the bond markets.
Before hitting the markets, potentially in May, "we will meet with the rating agencies in the month of April," County Manager George Burgess said in an interview Monday.
"We will basically be explaining the financings, explaining the project, explaining the revenue streams supporting the debt," he said. "And the intent of all of that, of course, is to tell our story, explain it so that we can kind of get a rating, get an opinion — the investors will want that, of course — and to try to secure bond insurance."
These steps mark the beginning of a crucial process.
With the recent approval from elected officials, the ballpark project is lined up to move forward.
But an out clause built into the deal to protect against potential financing curveballs would allow officials to end the game penalty free before July 1.
If it's clear before June 1 that the financing isn't feasible, the plug could be pulled sooner to save a month of spending, Mr. Burgess said.
Of the up-to $508 million in bonds the commission authorized the administration to sell, the plan is to sell about $70 million backed by convention development tax revenues and about $237 million backed by tourist development and professional sports facilities franchise tax revenues, he said.
"Those are the ones that are bed-tax backed that we want to sell before July 1, or at least know that we can't or that it's too expensive — whatever," he said. "And if we can't, then we have the option to terminate if we so desire. If we sell them all and we have reason to be optimistic, then we go forward with the project."
Mr. Burgess observed that markets have improved in recent months.
Wifredo Gort, a senior vice president with securities firm Samuel A. Ramirez & Co. and former Miami commissioner, said the same in March.
He is not involved in the Marlins deal.
"The market's coming back for municipal bonds," Mr. Gort said. In planning for bond issuances, the county must keep an eye out for any big changes, but "all I can see personally is improvement in the market."
Still, Mr. Burgess said, "you really don't know what's going to happen in the market until you go to the market."
He said he could not cite ahead of that estimated costs or rates.
One scenario provided to county commissioners in February showed costs at about $1.8 billion to pay off the bonds over the next 40 years.
The county has not set an official ceiling for interest rates that would necessitate pulling the plug on the deal, but Mr. Burgess cited 7¾% or 8% as "ridiculously high" examples. There's no "magic number" now, he said, but "that's something we'll work on closer to the issuance with our advisers."
There's also no single sign that would trigger a green light.
It's tough to tell if the market looks good one week whether it will be better the next, Mr. Burgess said — "you simply just need to go."
Reacting to difficult markets, the county issued its most recent series of general obligation bonds in two sales.
In the stadium project's case, "I'd rather go in one," Mr. Burgess said. "I don't want us to have sold half the bonds and then be dependent on good things to happen to sell the second half. I want us to know before July 1 whether we can or can't in totality."
The plan is to structure the debt so the bulk is paid off decades down the line, allowing time for bed tax revenues to increase.
This year has brought steep drops in collections. Across the board, tourist taxes were down 17% in January. The tourist development and professional sports taxes that make up the bulk of the ballpark financing dropped 22%, and convention development taxes 14%.
County projections presented to commissioners in February showed a 2% decline this year, two stagnant years, then a 5% average annual growth over the next few decades.
During last week's vote, Mr. Burgess presented a range of scenarios, the most drastic showing a 20% decline the first year of the deal.
The county has not come up with new scenarios in the week since, but as the financing process gains momentum, "we'll run them until we're blue in the face," Mr. Burgess said.
Still, "the truth of the matter is, you have to accept the fact that you're programming over 40 years, that a lot of your debt is structured so that it's back loaded, and the key thing to all of this is that your recovery, your tourist activity [recovery], happens probably in three to four years. If it takes six or seven years to get back to where you are now and then have normal growth, then there's a concern"
But if tourism recovers within a maximum five years, and then tax collections grow an average 4% to 5% annually, "the financing is designed to work," he said. "And we also build cash reserves that we want to see accumulate in our bed tax funds to kind of further protect against ever having to access a secondary pledge."
The "secondary pledge" on the bonds is to be non-ad valorem revenue, part of the county's general fund.
Several commissioners have expressed concerns about touching the general fund.
Mr. Burgess noted that the county often uses non-ad valorem revenues as the secondary pledge on special obligation bonds.
At the ballpark vote last week, he provided a list of 17 current and past bond issues.
"That's something that you do not because you don't think that your primary revenue source is going to be there to make the payments, but to enhance the marketability of the money, the borrowing, to kind of reduce whatever the cost of the money might be and improve the credit worthiness of the debt," he said Monday. "Because the investor sees that, yes, it may be coming from this stream, but there's this very significant source behind it, so I don't have to worry about my bonds not being paid."
Municipal bond expert Mr. Gort said the same when asked last month whether naming non ad valorem revenues as a backup would make the bonds more attractive.
"That would benefit, yes," he said. "That's called credit enhancement."