BRADENTON, Fla. - The Florida House has passed a $65.1 billion budget for fiscal 2009 that withholds state sales tax revenue previously pledged toward professional sports team venues, which could adversely impact outstanding debt and credit ratings.
At a time when revenues supporting Florida's budget are declining rapidly, especially sales and real estate taxes, lawmakers said they could not justify funding venues for billionaire owners of sports franchises while at the same time approving budget cuts affecting the state's "most vulnerable citizens."
The budget was approved 72 to 41 last Thursday, but the amendment placing a year-long freeze on the sales tax subsidy was passed unanimously by a voice vote.
Rep. Ron Saunders, D-Monroe County, said many lawmakers who supported the subsidy in the past did so believing it contributed to economic development. Saunders said his amendment would prohibit the Department of Revenue from distributing sales tax revenues to sports franchises in fiscal 2009, but the Legislature could resume the payments in fiscal 2010.
"The notion of funding sports franchises when we're really going to be taking over $1 billion from our most vulnerable citizens in our state would shock people," Rep. Dan Gelber, D-Miami Beach, said in support of Saunders' amendment. "[This] will show the citizens of our state that our priorities are with them and not with billionaires and not with sports franchises but with the people, the students, the teachers, the medically needy, and the children of our state."
A number of cities, counties, and conduit issuers have sold debt backed by the state sales tax for new or renovated football, baseball, basketball, and hockey venues across Florida. The exact amount of debt sold was not immediately available but the subsidy has been available for nearly 20 years.
In 1991, lawmakers enacted a statute with a funding mechanism for state support of the construction of professional sports facilities in Florida. The law allows specified teams to qualify to receive $2 million of state sales taxes annually over 30 years. The law allows the pledged revenue to be used to back bonds.
"Clearly this money has been pledged for debt service and it was statutorily allowed to be pledged for debt service," said Randy Hanna, managing shareholder at Bryant Miller Olive LLP. "For [the state] to remove that money would violate the contract that the state has with the bondholders."
Bryant Miller Olive was bond counsel on the sales tax securitization of bonds for the construction of Raymond James Stadium for the National Football League's Tampa Bay Buccaneers. Other teams that received the subsidy include the NFL's Jacksonville Jaguars, the National Hockey League's Tampa Bay Lightning and Florida Panthers, Major League Baseball's Florida Marlins and Tampa Bay Rays, and the National Basketball Association's Miami Heat and Orlando Magic.
Orlando, in fact, was the most recent issuer to sell sales-tax backed debt. Its offering of $31.9 million sold Feb. 27 and is a portion of the financing for a $480 million, 750,000-square-foot multi-use events center that also will serve as a new arena for the Magic and the Arena Football League's Orlando Predators.
"Because the state sales tax money is already pledged, there is little impact to the city," said Orlando spokeswoman Heather Allebaugh, when asked what would happen if the state votes to stop the subsidy. "If this passes, it would be the bondholder that is impacted."
Allebaugh said that the city's bond rating is not likely to be affected because the rating on the debt is tied to the revenue stream. Still, ratings for bond issues backed by the tax could feel an impact.
"From the beginning we have relied on representation from bond counsel that these funds constituted a continuing appropriation over the life of the bonds," said John Incorvaia, an analyst with Moody's Investors Service. "It seems logical, if this is indeed the case, that if you take away the only source of revenue pledged to repay bonds, there could be serious rating implications."
The Senate has passed a $65.9 billion budget that does not prohibit the subsidy next year. The two chambers are expected to begin conference negotiations on the budget this week.
Hanna said his firm is urging clients to have their lobbyists work with Senators and House members to make sure the issue is resolved in conference.
"Some members of the House have stated that they recognize they may have created a problem. We're hopeful they will correct this before the end of session," Hanna said. "If not, bondholders will have to resort to legal action to protect the contract rights that they have."
The Florida legislative session ends May 2.