Regional News

Stadium Fund Coming Up Short

CHICAGO - After years of struggling with falling sales tax revenue, officials in Hamilton County, Ohio, are facing a looming deficit in the fund that makes debt payments on its two major sports stadiums.

Hamilton County, which includes Cincinnati, is facing a $13.2 million 2010 deficit in its stadium fund, which pays off debt for the Paul Brown Stadium, home of the National Football League's Bengals, and the Great American Ball Park, where Major League Baseball's Cincinnati Reds play. The deficit could balloon to $92 million by 2014.

County finance officials for years have warned that the fund could run out of money. Sales tax revenue makes up Hamilton County's largest revenue source - about half of it goes into the stadium fund - and after decades of strong growth, collections began to flatten out in 2002 and have weakened considerably during the last two years amid the national recession and weak Ohio economy.

The county has tried twice since 2006 to raise the sales tax from its current rate of 6.5%, but voters have rejected both efforts. In November 2008 Moody's Investors Service downgraded the county's general obligation debt to Aa3 from Aa2, citing deep dips in key revenue sources.

Hamilton County has seen its sales tax revenue fall far short of original expectations that debt repayment schedules were built around. In 1998 it sold $344 million of debt to pay for construction of Paul Brown Stadium, and in 2000 issued roughly $330 million to pay for Great American Field.

Both stadiums are funded with proceeds from a half-cent sales tax increase approved by county voters in 1996. As part of that campaign, officials promised to roll back a portion of the property tax, and vowed to make annual payments to the Cincinnati Public Schools to compensate for the decrease in taxes. Both the obligations account for big chunks of the stadium fund, along with debt service.

When the county issued the debt, officials estimated that sales taxes would climb at least 3% annually, a projection based on an annual 7.4% growth rate over the previous 30 years. But from 2002 though 2007

Hamilton's sales tax grew only 1.9%, and so far this year has declined at least 7% from last year and could fall by 12% by the end of 2009, according to recent budget documents.

The deficit comes three years after the county made two moves to stem problems related to dwindling sales taxes. In 2006, officials restructured the stadium bonds, pushing back the debt's maturity by several years to achieve a present-value savings of $26.5 million.

Also that year the county reached an agreement with the Cincinnati Public Schools allowing the county to push back payments to the district for three years, saving $39.5 million from 2006 through 2009. The pact meant that the county would make higher payments beginning in 2010.

Now as the three-member county board attempts to deal with the deficit, commissioners have said they would again negotiate with CPS to push off payments - a move that could signal problems for the school district, which has used the county payments to back some of its own debt, according to local reports.

Commissioners have also said they hope to renegotiate leases with the Bengals and Reds.

With roughly $62 million in revenue expected next year, the fund owes $27.6 million for debt service on the stadium debt, and another $4.9 million for a partially bond-financed riverfront development. Another $10.9 million is slated to go to Cincinnati Public Schools, and $17.5 million is set aside for the property tax rollback.

"The sales tax decline is a concern for overall operations," said Henrietta Chang, an analyst at Moody's who covers the county. "The revenue for the [stadium debt] is not as much a concern, as both have a first claim on that half-percent tax passed for that purpose," she said. "Until now, 30% of the increase has been diverted for the property tax rollback, so if they need to, they would have to tap into that for debt service."

Moody's rates $344.5 million in senior-lien debt issued for the Reds' stadium at Aa3 and assigns an A2 rating to $265 million in subordinate-lien debt.



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