The Arizona Sports and Tourism Authority has regained a stable outlook from Fitch Ratings after a legal threat to its revenues died before the U.S. Supreme Court.
Fitch rates $166.4 million of series 2012A bonds used to finance the Arizona Cardinals stadium in Glendale at A. The bonds had been on negative watch pending the resolution of a lawsuit challenging the constitutionality of a tourism tax that supports the revenue bonds.
On Oct. 7, the U.S. Supreme Court denied hearing a lawsuit that claimed the collection of and use of car rental taxes by the authority was in violation of the Arizona state constitution.
On Feb. 25, 2019, the Arizona Supreme Court held that the car rental tax that is pledged to repayment of the series 2012A bonds is constitutional. That opinion was the latest decision in litigation that began in 2010 with the filing of a class action lawsuit that challenged the constitutionality of the tax.
The original suit argued in part that the state constitution requires proceeds from the car rental tax be used only for street and highway purposes. After 2014 and 2015 court rulings in favor of the plaintiff, the state court of appeals in March 2018 held that the tax was valid, and the state Supreme Court action affirmed the appeals court ruling.
Maricopa County tourism tax revenues contribute more than 55% of fiscal 2019 pledged revenues toward the bonds, roughly evenly split between the car rental surcharge and a 1% tax imposed on the cost of each lodging transaction within the county.
The first $2.50 on each rental transaction is required to go to the Maricopa County Stadium District, another agency involved with spring training baseball facilities in the county.
“MCSD historically used this money to pay debt service on its outstanding bonds,” Fitch analysts noted. “Consequently, the pledged portion is effectively the difference between $2.50 per transaction and 3.25% of gross proceeds or gross income, for transactions in which the latter is the higher amount.”
With the retirement of MCSD debt in 2018, the entire 3.25%, including the first $2.50, goes to the authority. The tourism tax is authorized through February 2031, five years before the final bond maturity.
The other major pledged revenue source, facility revenue, is made up of state income taxes from Cardinal operations, sales taxes paid to the authority from Glendale from retail, restaurant and events at the stadium during the duration of the life of the bonds, and other facility revenues.
“This is the sole source of pledged revenue for the final five bond maturities, and debt service drops in those years accordingly,” Fitch said.
“Pledged revenue growth prospects are strong based on expected population and regional economic growth,” analysts added. “Assuming a moderate amount of additional leveraging, fiscal 2018 pledged revenues could withstand a more than 46% drop before not fully covering current maximum annual debt service, which is nearly 10x the scenario result and 3.7x the largest actual decline.”
The authority was created as a political subdivision of the state in 2000, to build and finance what is now called State Farm Stadium and to promote tourism, major league baseball spring training, and youth and amateur sports within Maricopa County.
The stadium is home to the National Football League's Arizona Cardinals and the annual Fiesta Bowl. It periodically hosts large sporting events, including the Super Bowl, college football playoff games and NCAA basketball tournament games.
