DALLAS - The Louisiana Superdome is asking for $27.5 million from the state to make up for a shortfall caused by ballooning debt service on almost $300 million of outstanding bonds and contractual payments to two professional sports teams that play at the complex in downtown New Orleans.
Doug Thornton, senior vice president of SMG Services, which operates the Superdome and the New Orleans Arena for the Louisiana Stadium and Exposition District, said expected revenues from a 4% tax on hotel rooms in Orleans and Jefferson parishes and money generated by events at the facility will not cover operating expenses, including debt service and required payments, in fiscal 2010.
Thornton said the district, which is an arm of the state, would need $27.5 million from the state general fund in fiscal 2010 to maintain operations at the stadium and the adjacent basketball arena. If the state will forgive a $7.5 million loan it made to the district in 2005, he said, the shortfall would drop to $23.5 million.
"The biggest problem is that we have variable revenue streams that are not sufficient to cover the fixed costs we have," Thornton said Tuesday at a session of the general government subcommittee of the Louisiana House Appropriations Committee.
The Superdome would likely break even in fiscal 2010 if it were not for debt service and the direct payments to the teams, Thornton said. The hotel tax will generate $40 million in fiscal 2010. Stadium operations are expected to generate $23.8 million, but $9.7 million will go to the National Football League's Saints and $4 million for the National Basketball Association's Hornets from parking and concessions at the complex.
"We're paying out more than we're taking in," Thornton said.
The district must make payments to the New Orleans Saints of $23.5 million in fiscal 2009 and 2010 for the team to continue playing at the Superdome, with similar payments to the New Orleans Hornets of $6.8 million in fiscal 2009 and $7 million in fiscal 2010.
A $294.3 million auction-rate bond issue sold by the district was structured so that debt service payments would start off low and then escalate, according to Thornton. The district paid $9 million in debt service in fiscal 2009, but will pay $18.2 million in fiscal 2010.
The bond proceeds included $25 million for the district to help pay operational expenses until hotel tax revenues were sufficient for its needs, Thornton said, but that money has been spent.
The stadium district's credit was downgraded to Ba1 by Moody's Investors Service and to B by Standard & Poor's after Hurricane Katrina hit in 2005. Moody's bumped the rating up to a bare investment-grade level of Baa3 before the 2006 bond sale, but district officials said they did not seek a revised rating from Standard & Poor's because it was unlikely the agency would have raised the bonds above junk status.
In addition to the $295 million of outstanding debt from the 2006 issue, the district has fixed-to-fixed and a fixed-to-floating swaps that currently would cost $100 million to terminate.
Louisiana received permission last year from the Internal Revenue Service to purchase the district's auction-rate securities when the rate went from 2% to 12% as a result of losing the enhancement from a downgraded bond insurer. That exemption will expire at the end of 2009, Thornton said.
The state could seek an extension of the exemption or refund the debt through another bond issue, he said.
The state and the district are suing Financial Guaranty Insurance Co., which insured all but $56 million of the 2006 bonds, along with lead underwriter Merrill Lynch & Co., in state and federal courts over alleged securities law violation. The district said it was misled by Merrill Lynch over the potential volatility of the auction-rate bonds if buyers could not be found, and is seeking return of its $13 million insurance premium.
Total payments to the Saints will total $187 million by the time the agreement ends in fiscal 2010, Thornton said.
Louisiana is the only state that gives money to its NFL franchise to keep it from moving away, he said.
"Most cities and states have some form of economic incentives, but I know of no other state that provides a direct subsidy," Thornton said.
State Rep. Eddie Lambert, R-Prairieville, said the agreements with the sports teams made it unlikely the district could erase the shortfall through additional revenues.
"This is a doomed scenario," Lambert said. "There's no way you can meet your debt service with these professional sports teams."
Thornton said the Superdome hosted more concerts and other events in 2008 than in any year since it opened in 1975. There is little likelihood that additional events could reduce the expected deficit, he said.
"There are not enough monster truck shows in the universe to make up a $27 million shortfall," Thornton said.