Debt payment concerns echo from baseball stadium debacle

A shift in bank letters of credit for $100 million in bonds reactivates an appalling baseball stadium deal that left taxpayers on the hook for $3 billion.

That bond issue is among a fistful that Miami-Dade County and the City of Miami used in 2009 to build a stadium as Marlins owners claimed that without a new ballpark the team would leave. Those owners later sold out, bragging about $1 billion in profits on the backs of taxpayers who will still be paying off the debt for decades.

The deal was struck when governments couldn’t afford a $350 million stadium, but the county’s mayor told the manager to make the deal and the commission caved in. Bear in mind that commissioners were told that the county’s upfront cost was to be $350 million. They never learned before voting what the county would pay over the long term, though several asked.

The county simply put the $350 million bill on its equivalent of your credit card and for years made only minimum payments.

So what happens? By the time final payments are made, it becomes an almost $3 billion stadium balloon that you and your children must fund.  

What happened in July is innocent enough: to support one bond issue the county switched from a PNC Bank direct-pay letter of credit to a letter of credit from TD Bank. That triggered a report from Fitch Ratings on the impact of the change on bondholders whom the county must pay.

Fitch assessed the bank shift and rated the bonds ‘A+’ – essentially a 7 on Fitch’s local government bonds scale of 1 to 10, with 10 the highest. But that short-term rating is based on backing from TD Bank. Once the letter expires, Fitch said, the outlook on the bonds will be negative because of the county’s lower rating.  

This $100 million in bonds plus interest is to be repaid solely from the Professional Sports Franchise Facilities Tax, which is 1% on hotel, apartment and other rents countywide except in Miami Beach, Bal Harbour and Surfside. 

But that same tax is also still paying off $81 million that financed the Key Biscayne Golf Course, the Golf Club of Miami, the Orange Bowl Stadium, the International Tennis Center, the Miami Arena, the Homestead Sports Complex, and the Dade International Speedway. The fact that four of these are now gone is proof that glittering sports facilities are seldom economic gold.

The Marlins stadium was gold only for team owners. They said it would spur attendance, so they could pay top player salaries. The year the deal was made, the team in its old stadium averaged 18,770 tickets per game, 29th among the 30 teams. Last year, in its new ballpark, it was 14,355, also 29th. Top salaries too remain a myth.   

To repay this $100 million bond issue, outlays are to total $182.295 million – if the assumed 5% interest rate on these variable interest bonds holds through 2049. If interest rates rise, so will the total.

Under these bonds, the county pays only interest until 2031, when it starts to repay the $100 million itself, and 70% of that principal will be repaid from 2038 to 2040. That will require in those years $23 million to $27 million a year from the tax.

Will the money be there? Is an annual tax collection rise assured?

Revenues of the sports franchise tax rose each year from 2011 to 2019, from $9 million up to $15.6 million. That rate of increase would allow the tax to fund this baseball bond issue – except that it also must pay debt for the seven other sports facilities, and it’s a safe bet that other sports organizations will also tap the tax to fund their own buildings. 

A stadium’s life today is under 30 years, so baseball may return by then to seek a new home long before the present stadium is paid for. After all, the Miami Arena that we’re still paying off was long ago torn down and the new Miami Heat arena costs the county millions annually too.

Note too that we’re still paying off bonds to renovate the long-gone Orange Bowl, which has been replaced by the Marlins stadium that we’re paying for at the same time.

The kicker is that annual receipts from the sports facilities tax didn’t keep rising. In 2019 they were $15.6 million, but in 2020 as the pandemic hit they fell by more than a third to $10.7 million. In 2021 they rose to $13.7 million, which still was less than the 2018 level. Will they rise to the $27 million a year needed just to pay this stadium bond issue by 2039?

This column warned in 2009 about this bond issue, saying “that repayment schedule presumes rapid and undiminished annual growth in … tax receipts starting at 10% in 2011 and never dipping below 5% thereafter through 2049. Who believes in uninterrupted annual growth? Ever hear of hurricanes?”

As it turned out, it was a pandemic in 2020, not a hurricane. What happens between now and 2049?

Don’t forget, this is just one of four or more bond issues that repay stadium debt.

Another was from the City of Miami, which is on the hook for $319 million for garages that the city built and runs for the Marlins. The city at least splits stadium parking money. The county gets nothing for its billions, no ticket money, no advertising money, no luxury suite money, and of course no baseball rent for the stadium it owns.

The most costly county bonds by far for the baseball stadium raised over $80 million that will cost $1.3 billion to repay – 16 times as much. We are not making that up.

Costs on that bond issue are astronomical because the county pays only pennies yearly. But for eight consecutive future years payments on this one bond issue will each exceed the total borrowed, including six incredible years where each payment will top $118 million.

That’s what happens when you make only minimum credit card payments. Someday the balloon goes up and payments soar.

Don’t blame current county officials for the debacle; they weren’t there when others signed off on this weighty debt.    

But current officials must assess the express train of debt heading down the tracks not at them but at successors and taxpayers. As they pile on debt for necessities, they can’t assume that tax income will rise forever to pay it all off. It probably won’t. 

Remember that peril the next time a sports team comes calling for public money.