Las Vegas gets negative outlook as coronavirus empties Strip
Nevada’s state-ordered stay-at-home order has turned the Las Vegas strip into a ghost town.
“The city is working with other local and state agencies and the business community during the pandemic,” said Jace Radke, a Las Vegas city spokesman. “Las Vegas will be ready for all who are dreaming of a visit after the country returns to normalcy.”
S&P Global Ratings revised the outlook to negative from stable on its AA rating for the city’s $810.6 million in debt Thursday citing the potential economic impact of the state’s 30-day shutdown order that currently extends to April 17.
"The outlook revision reflects our anticipation that there is at least a one-in-three chance that economic conditions will worsen to a degree that affects the city's reserve position at the current rating," wrote S&P Global Ratings credit analyst Michael Parker.
S&P's AA rating ratings applies to all of the city’s bond issues, except the redevelopment agency, which has a BBB-plus rating from S&P.
The rating agency hasn’t baked in the potential for a shutdown beyond the April 17 date implemented by Nevada Gov. Steve Sisolak, but S&P will be keeping close tabs on all of the muni credits it rates, Parker said in an interview.
About 55% of the city's general fund revenue comes from consolidated taxes, or C-tax, which are collected by the state and distributed to local governments through a county-of-origin allocation method. C-taxes are composed primarily of sales, taxes, but also include cigarette tax, liquor tax, real property transfer tax, and governmental services tax.
Clark County, one of the fastest growing regions in the country, is dependent on Las Vegas’ gambling, leisure and hospitality sectors for one-third of revenues for C-tax, Parker said.
Las Vegas accounts for 27.5% of the county’s c-tax and Clark County is the largest municipal government in the state, Parker said.
"The outlook revision further reflects our view of the recent global spread of COVID-19, which has provided some national economic and credit uncertainty, especially for issuers largely reliant on tourism and consumer discretionary spending," Parker said.
Moody’s Investors Service also included an asterisk for any municipal bonds secured by hotel taxes or similar revenues in last week’s analysis of the CARES Act, the $2 trillion stimulus bill approved by Congress last week.
The federal stimulus measures in the CARES Act are positive for state and local governments, but an exception will be "municipal bonds secured solely by hotel taxes or similar revenues, which are more vulnerable to coronavirus-induced revenue declines," said Nick Samuels, a Moody's vice president and senior credit officer.
While federal decisions have helped support stability, Samuels said, many municipal entities will continue experiencing budgetary strain in the coming months.