DALLAS — The Texas attorney general’s office filed papers in a Dallas County state district court Wednesday rejecting the effort by Irving to divert state taxes to support city bonds for a $250 million entertainment complex in the Dallas suburb.
Irving’s financing plans for the $200 million of revenue bonds it hopes to issue for the facility near Dallas-Fort Worth International Airport includes the state’s portion of the taxes on retail sales, hotel occupancy, and mixed drinks generated at the planned mega-complex.
The motion filed by David Mattax, director of defense litigation for the state, said Texas legally cannot divert its portion of the tax on mixed-drink sales to the city.
State lawmakers could allow the diversion of the sales and hotel taxes to the city, Mattax said in the filing, but Irving would have to warn bond buyers that the tax diversions would have to be reapproved every two years by each new Legislature.
“This does not mean the project cannot go forward, however, but these two issues must be clarified to be in accordance with state law,” Mattax said.
The city said it did not know how much of the projected revenue pledged to the proposed bonds would be affected if the court accepted the state’s position on the taxes.
Attorneys for the city immediately filed a counter motion rejecting the state’s position and asking Judge Craig Smith to approve the original financing plan.
Mayor Herbert Gears said the project would proceed even if the judge agrees with the state.
Irving filed the bond validation lawsuit in the 192d State District Court to decide the validity of the pledged revenue streams after the City Council decided in August to seek approval for the bonds from a judge rather than Attorney General Greg Abbott.
Smith will hear arguments Tuesday on the proposed revenue streams.
Irving’s financial plan for the complex is based on the sale of taxable Build America Bonds, which will expire at the end of 2010. Without the interest rate subsidy on the bonds, the city said, the project would not be viable.
Proposed revenue streams for the project include a 2% hotel occupancy tax, sales taxes on tickets at the complex, and a parking tax approved by voters in 2007. The debt would also be supported by a 2% hotel tax that currently supports bonds that built Irving’s new convention center and a 5% hotel tax dedicated to the convention and visitors bureau.
The hotel taxes would provide 21% of the total debt financing, with the parking tax contributing 27%. The other sources include 15% from the ticket tax, 14% from the alcohol tax, and 3% from rent on the facility.
The total cost is set at $250 million, with operator the Las Colinas Group providing $50 million.
Irving’s general obligation debt is rated triple-A by Standard & Poor’s and Moody’s Investors Service, but bonds backed by the hotel tax have been rated A-minus by Standard & Poor’s with no rating from Moody’s or Fitch Ratings.
