CHICAGO – St. Louis and Missouri leaders say they won't waver in paying off Edward Jones Dome bonds, though the stadium's National Football League tenant has decamped for California and state lawmakers are showing signs of balking.
The statements come in response to concerns being raised over the strength of the political commitment to continue paying off bonds backed by appropriation after the St. Louis Rams announced their move to Los Angeles for the 2016 season.
A key state House committee stripped the $12 million appropriation needed to cover Missouri's share of bond repayment from the pending fiscal 2017 budget. The legislature is still working on the budget and it could be re-inserted before a May vote.
"Fiscal discipline means paying your bills, and this is very early in the budget process. That's why the governor is confident that the General Assembly, as it has done each and every year since the agreement was entered into by Gov. Ashcroft's administration, will continue to fulfill this financial obligation and help preserve Missouri's AAA credit rating," Gov. Jay Nixon's spokesman, Scott Holste, said in a statement.
Nixon raised the ire of some lawmakers last year by putting together a public financing package in an effort to keep the Rams in town with a $1 billion stadium proposal that allowed for new bonding without a vote by lawmakers or the public.
Lawmakers worry the administration might attempt to do the same to help finance a Major League Soccer facility. NFL owners in January approved the Los Angeles move sought by Rams owner Stan Kroenke.
The dome was built in 1995 to lure the Los Angeles Rams to St. Louis. It was financed with the help of $256 million of 30-year appropriation backed bonds issued by the St. Louis Regional Convention & Sport Complex Authority in 1991. The bonds are repaid under a complex agreement between the city, county, state, and commission with payments subject to an annual appropriation.
They pay a combined $20 million annually to cover debt service on remaining dome bonds and $4 million for maintenance. About $144 million remains outstanding.
The city and state stand to lose tax and other revenue generated through game attendance, but the Rams' departure means they will both save the substantial sum they had allotted toward the $400 million public contribution for a replacement stadium, an offer Kroenke never appeared to seriously consider.
Moody's Investors Service in a recent commentary described the Rams' departure as a blow to St. Louis but said the direct impact was minimal at $4.2 million annually, with $1.8 million coming from amusement taxes and $1.9 million from sales taxes.
The total amount accounts for less than 1% of city operating revenues.
"In this case, the bondholders are relying on the power of rating agency and market pressure to retain continued market access for the state, city and county as their key protection against non-appropriation, in our opinion," Randy Gerardes, senior analyst at Wells Fargo Securities LLC, said in a recent research piece on the stadium decision.
"The remedy for failure to appropriate by any party to the financing agreement is to terminate use of the project for convention and football purposes," the report said. "Of course, we note that this remedy is of little use now that the main tenant no longer occupies the facility."
The report noted three recent trades that followed the mid-January decision. The bond traded at 46 basis points over the Municipal Market Data's top benchmark after not trading since last October. The bonds carry double-A level ratings.
City comptroller Darlene Green said the city wouldn't risk its rating.
"Maintaining the city's positive credit rating is paramount, and as such, despite the loss of the Rams professional football team to another community, St. Louis city intends to continue appropriating debt service to pay the bonds…which mature in 2022," Green said in a statement. She also stressed that the dome is part of the city's convention center and will continue to be used despite the team's loss.
Gurtin Fixed Income has shed all of its St. Louis debt.
"We decided that the downside risk that may occur should city leaders publicly question paying for a now mothballed stadium, potential spillover effects on unrelated securities, and whether or not the headline risk could impair liquidity in the city's debt was sufficient to sell any positions tied to the city," Gurtin reported.
Gurtin fears that the appropriation could fall victim to ongoing fiscal strains as political leaders seek to avoid politically difficult cuts or other measures to erase red ink.
"As a result, there is a heightened risk to bondholders exposed to any of the city's security classes which may be impacted by the spillover effect of a non-appropriation event. While many cities may be initially enthused by the promise of economic expansion that a new stadium may bring, the risks of failed cash flows or loss of the occupying team are critical considerations, not only for taxpayers, but for bondholders as well."
