DALLAS — With hotel taxes falling short of projections, the Dallas suburb of Irving plans to commit a diverse stream of revenues to back $200 million of bonds the city expects to issue in October for an entertainment complex.
The $250 million complex — long anticipated as a companion project to the city's convention center now under construction — will include $50 million of private financing from the developer Las Colinas Group.
The project is also tied into the new Dallas Area Rapid Transit Orange Line coming through Irving and the Las Colinas area en route to Dallas-Fort Worth International Airport from downtown Dallas.
At a meeting earlier this month, the Irving City Council revised its financing agreement with Las Colinas Group and developed a financing plan to secure the highest possible bond ratings.
Irving's general obligation rating is triple-A from Standard & Poor's and Moody's Investors Service, but bonds backed by the hotel tax were last rated A-minus by Standard & Poor's, with no rating from Moody's or Fitch Ratings.
To make the refinancing affordable, Irving Mayor Herbert Gears last year lobbied Washington for the right to use Build America Bonds for the project. U.S. Rep. Eddie Bernice Johnson, D-Dallas, introduced HR 4606 to make the project eligible for the federally subsidized bonds, but the measure never made it out of committee. Without BABs, the city would have to provide enough security to obtain affordable rates.
Irving voters in 2007 approved a 2% hotel tax to add to the existing 2% city tax to back the $126 million convention center bonds. Including Dallas County's portion, the hotel tax is 9%. The voter-approved tax will also provide about 21% of the financing for the entertainment center, under the city's plan.
Other revenue backing the bonds will include 27% from a voter-approved tax on venue parking, 15% from a tax on venue ticket sales, 14% from taxes on mixed beverage sales at the site, and 3% rent from the venue operator.
Gears said the combined pledged revenue will exceed debt service but is designed to reduce risk for bondholders.
The entertainment project features a concert hall with an adjustable roof that can alter capacity for various events. With an anticipated 200 events per year, the hall will be surrounded by restaurants and bars whose sales will provide added revenue and attract visitors year around, according to the city.
The City Council last year voted to ease enforcement of alcohol sales regulations at the center.
Anticipating an improving economy, Gears expects the entertainment center to be open within two years.
City officials said there are no plans to compromise the debt-service pledges for the convention center bonds. However, analysts at Standard & Poor's saw growing demands on the hotel tax as a possible risk.
A 2009 report cited "significant additional capital needs related to the $297 million in hotel occupancy tax projects approved by voters in November 2007, which given the permissive additional bonds test, could significantly reduce debt service coverage and likely reduce coverage very close to the 1.25x bonds test."
Bordering the city of Dallas and DFW International Airport, Irving's population is estimated at about 210,000 people. The business and residential district known as Las Colinas is home to several Fortune 500 headquarters, including Exxon-Mobil Corp. and Kimberley-Clark Corp.