The first installment of public funding to gussy up Jacksonville, Florida's NFL stadium is a major component of a $355 million bond sale that comes to market next week.
The bonds are rated AA by S&P Global Ratings and KBRA and AA-plus by Fitch Ratings.
Proceeds include $145 million toward reconstruction of EverBank Stadium, home of the NFL's Jacksonville Jaguars. The city has promised to ultimately contribute a total of $625 million to subsidize the project for the team, owned by automotive
Jacksonville is one of
"We aren't big fans of taxpayer financed stadiums," said John Mousseau, vice chairman and chief investment officer for Cumberland Advisors. "Most of the research out there [shows] they never really end up reaping the economic benefits back to the communities and the teams rake in all the dough. Most stadium and arena bonds trade cheap for that reason."
The project promises to rebuild the open-air stadium into a facility with a canopy roof protecting fans and players from the elements.
The stadium deal came after implicit threats
"The cities are held hostage by the teams and when you only have one professional sports franchise, the hostage situation feels worse and the pressure to finance is greater," Mousseau said.
Cure said sports venues normally don't have a net positive impact on economies.
"The city's contribution creates yet another fixed-cost liability and, along with their underfunded pension situation, creates the largest negative for this credit. There is also something perverse about subsidizing a billionaire owner of the team when potential cuts to programs from the federal government will have a potentially negative impact on the city's poorest citizens."
Muni Credit News Publisher Joseph Krist has a more positive take on Jacksonville's stadium funding.
In most cases it wouldn't be good governance for a city to contribute so much money to a stadium. However, in Jacksonville, he said, "the stadium has a long history as an economic driver and for years it was what people knew of Jacksonville – the Gator Bowl and the annual Florida-Georgia game…. It is easy to forget that Jacksonville is the state's most populous city."
Jacksonville, which has been consolidated with Duval County since 1968, has about a million residents.
It is part of the state's fourth-most populous metropolitan area with about 1.6 million residents.
The stadium is expected to ultimately cost $1.45 billion and be ready for the 2028 NFL season, according to an online investor presentation.
The city will be using non-ad valorum taxes to repay the bonds, with the primary sources being sales tax, state revenue sharing and utilities service taxes. These covenant revenues had a compound annual growth rate of 5.51% from fiscal 2020 to fiscal 2024, according to the presentation.
Ramirez & Co. is the lead underwriter on the deal expected to price Aug. 5. BofA Securities, Raymond James and TD Securities are the co-managers. PFM is the municipal advisor and Greenberg Traurig is the bond counsel.
Preliminary plans call for bond maturities through a 2055 term bond, the presentation said, with a 10-year par call.
Along with providing initial financing for the stadium, the bonds will provide money for various capital improvements throughout the city.
In affirming its AA rating, S&P pointed to the city's robust and diverse economy and increase in population by 15% in the last decade. The city's conservative management team has led to "several years of positive operating performance and healthy reserve levels." Total fund balance rose to $650 million in 2024 from $558 million in 2023.
As negatives, S&P pointed to per capita debt and liabilities that are elevated and "are expected to rise in the next several years as the city issues additional debt for the stadium, in addition to funding projects outlined in the $2.2 billion five-year capital improvement plan." If local economic growth slows, the city's pension and OPEM liabilities could pressure the rating in the long term, S&P said.
The city has elevated physical risk due to exposure to hurricanes and sea-level rise, S&P said.
Jacksonville has been through a long struggle over pension funding that is not over.
"Despite pension reform efforts enacted in 2016 and 2017 that included reduced plan benefits, limitations on defined benefit plan exposure, improved pension fund governance, use of more conservative assumptions and a pay down of unfunded liabilities with dedicated future funding, the funded portions of the city's two major pension plans, the City of Jacksonville Retirement System and the police and fire pension plan, remain low, at 51.5% and 47.8%, respectively as of Sept. 30, 2024," KBRA said in its rating report.
"Material improvement in pension funding" isn't expected until fiscal 2031, KBRA said, when a 2017-passed half-cent sales tax for pension liabilities will kick in. The half-cent is scheduled to continue to the earlier of Dec. 31, 2060, or the year the funding level reaches 100%.
"It's not clear why a plan to reduce unfunded pension liability has to wait for six years," said Muni Credit News Publisher Joseph Krist.
The city, under terms of a state law, enacted pension reforms anchored by
As part of that deal, the city's defined benefit pension plans were closed to city employees, including public safety, hired after Oct. 1, 2017.
The effort to keep public safety employees on 401(k)-style defined contribution plans did not last; the city cut deals with police and fire unions that will allow their members to join the state pension system beginning in 2027.
The lack of a defined benefit plan "contributed to the hiring and retention struggles" the city faced, it said in the official statement for the bonds.
Jacksonville is "really maxed out," said Florida TaxWatch President and CEO Dominic Calabro. The city's willingness to spend is far more than its residents' willingness to increase taxes, he added.
"We believe that the City of Jacksonville should have a current actuarial study of the city pension system and assess its likely underfunded/unfunded gap," Calabro said. "Then size up what specific reductions in benefits are required to reduce or eliminate the gap."
The city had more than $4 billion in net pension liabilities and $398 million in other post-employment benefit liabilities as of September 30, 2024. Its component units had more than $1 billion in additional net pension liabilities.
"You would always prefer to have an entity address their pension and OPEB liabilities with a dedicated revenue stream sooner, rather than later so delaying using the half cent surtax from 2026 to 2031 is negative," Cure said.
"The city, however, has made positive pension assumption adjustments in recent years, including reducing the discount rate across all plans. This and closing its three pension plans to new employees in 2017 will help in managing its underfunded liabilities," he said.
"In the interim period until 2031 the city has a broad and expanding tax base, good reserve policies and historically positive financial performances and robust reserves that should help in preventing the city's unfunded liabilities from getting much worse," Cure said.
"Jacksonville and the surrounding area have shown steady growth the last six years [and have] certainly benefited from
"The credit is benefiting from the end of upheaval in the local government," Krist said. "The effort to
