Part XVII: Phoenix -- This Thread Title Available For Lease

[WpgJets]

i used to be a firm believer that the 31 december deadline was (like all previous deadlines) loose at the very best....if there was even a shred of progress it would be allowed to continue.

after seeing the panic in glendale's eyes last week, i am begining to think differently....they voted to accept what seemed to be an unfinished agreement, with all its to be determined revenue sources and such.....it looks to me that they felt the pressure to show the NHL that they are progressing.

all this leads me to speculate that the deadline might be a more significant milestone than i had originally considered.

i also didnt give goldwater much credit, but the deal seems so easy to pull apart that they might be a factor....they were lobbed a big fat watermelon and all they really have to do is swing at it....if it was even remotely difficult i suspect they would move along but im not sure how they can not step up to the plate on this one.

that big fat cheque collecting dust under that paper weight on bettman's desk must be looking pretty tempting at this point.

All the glendale's city council wanted to do basically is tell the NHL that they know of the deadline is near expiring and they got a deal in place, whether its complete or not so that they are actually serious about the Coyotes staying.

Its just a mad rush to get it rushed and signed. Goldwater i believe has the resources to invalidate the lease or delay it for a very long time and giving the shot of third parties like TNSE a shot at a better bid.

 

[RR]

Ok I've downloaded the June 30, 2009 Glendale F/S and I cannot find that $21B figure anywhere. Are you sure it wasn't $2.1B. I got the statements here:http://www.glendaleaz.com/finance/

On page 25 it show the statement of net assets which, in summary, says:
Assets of $2.3B less Liabilities of $1.3B for a net asset balance of ~$1B. Not that Glendale is in rough shape but I really questioned that $21B figure. Now I may not have the whole picture so if you can show me what I missed I'd be grateful.
edit: the city of Winnipeg which is 3X the size of Glendale has net assets of $4.3B so you can see my scepticism at $21B.

Sorry, was referring to assessed value to debt ratio from the Moody's report on the city's bond rating and credit worthiness:

Spurred by both residential and commercial construction, tax base growth has averaged 18.8% annually over the last five years, twice the national median for cities. The city's 2010 full market value declined slightly, however, by 1.9%, thus indicating the initial effects of the recession on property values and slowed commercial construction. The city's taxbase remains substantial at $20.6 billion in 2010...

Despite operating deficits in fiscal 2009, Glendale's general fund balance totaled a healthy $52.6 million (35.5% of general fund revenues) in fiscal 2009, above the national median for cities and well within the norm for cities in its peer group....Moody's considers the city's practice of maintaining healthy general fund reserve an important credit factor given the city's dependence on economically sensitive local and state revenue streams. Over the long term, Moody's expects management to maintain healthy general fund reserves to offset reliance on local and state sales taxes.

http://www.glendaleaz.com/Mayor/documents/MOODYSREPORT.pdf

 

[Whileee]

Personally, I'm more interested in seeing what happens if Goldwater decides to sue/challenge/injunct/whatever at all.

What is the timeline like for these kinds of things? Days, weeks, months?

If this thing goes past January 1st and and there's still no end in sight (or at least not a guaranteed end - meaning there's a relatively good chance Goldwater might win), what would the NHL's course of action be?

My feeling is that after Jan. 1st, the rules of the game will have have changed. Given that the NHL will finally be allowed to talk to out-of-town interested desiring to relocate the team, we'll be able to finally be able to gauge how committed they are to keeping them in Glendale.

It will be interesting to see if the NHL and Glendale renegotiate their agreement to extend the "deadline". If I were Glendale I would try to angle for that. Otherwise, if things start dragging the NHL has an agreement that they can just go ahead and sell the team for relocation any time after December 31. Glendale would be wise to try to push that back, unless they are just relying on the NHL's good faith...

 

[Whileee]

I suspect that they will be downgraded eventually anyway. The higher interest would probably only affect future borrowing, as the rate on a bond is typically set when it is issued.

Darn! That's going to put in jeopardy their plans to build a huge cricket stadium and "Desert Disney" as part of the Sports and Entertainment District.

 

[Whileee]

i used to be a firm believer that the 31 december deadline was (like all previous deadlines) loose at the very best....if there was even a shred of progress it would be allowed to continue.

after seeing the panic in glendale's eyes last week, i am begining to think differently....they voted to accept what seemed to be an unfinished agreement, with all its to be determined revenue sources and such.....it looks to me that they felt the pressure to show the NHL that they are progressing.

all this leads me to speculate that the deadline might be a more significant milestone than i had originally considered.

i also didnt give goldwater much credit, but the deal seems so easy to pull apart that they might be a factor....they were lobbed a big fat watermelon and all they really have to do is swing at it....if it was even remotely difficult i suspect they would move along but im not sure how they can not step up to the plate on this one.

that big fat cheque collecting dust under that paper weight on bettman's desk must be looking pretty tempting at this point.

I think that the NHL has figured out that Glendale doesn't do anything definitive unless they have a deadline with dire consequences. As I indicate in another post, it will be interesting to see what happens now if the current agreement is not changed and the NHL essentially has a running deadline. In other words, after December 31 they could pull the trigger on an out of town sale at any time if things are dragging or looking doubtful in Glendale.

I don't know if Goldwater has the resources or acumen to mount a good challenge to this, but there is plenty of evidence that they are motivated. Glendale has ticked them off and they have been tracking the Coyotes sale for over a year. I doubt that they'll just slink off and say "never mind" with the Glendale-Hulsizer that's staring them in the face now.

 

[King Woodballs]

Just my feeling but Goldwater wont sue

 

[Whileee]

Just my feeling but Goldwater wont sue

I think they will if the lease is not altered to their satisfaction. Heck, they took Glendale to court over failure to release documents about the sale negotiations. If they don't follow up now, it will be hard to see them as being relevant in the future.

 

[Faltorvo]

Nice summary. And the whole thing about it costing 18 million to operate does not factor in any of the revenues from the arena prior to this deal.




Not really. It depends if the bonds were issued at a discount or a premium. Let's say they want to issue the bonds at 6% interest but the market wants more than 6% for this issue. The bonds are sold at less than face value (let's say they sell at 95% of face) so the investor realizes more due to the discount. Coupon payments would be at 6%. This means that they need to issue more than $100 million in bonds in order to realize a net of $100 million, and this is without any issuing fees and costs which could also be in the millions and is usually deducted from the proceeds. So that $100 million issue could easily turn into an issue of $120 million on which they would pay 6% over 30 years.




Yes and no. It depends on the terms of the bonds (callable). It also depends on if you are willing to outright sell them on the secondary market where they can buy them back without them being callable.

Whole thing looks like a hedge fund deal designed to make a few people a lot of money at little risk to their own money.

Thank you.

 

[CGG]

Sorry, was referring to assessed value to debt ratio from the Moody's report on the city's bond rating and credit worthiness:

http://www.glendaleaz.com/Mayor/documents/MOODYSREPORT.pdf

You can't use simple debt-to-equity ratios for municipalities. Any government agency has to work on a year-to-year basis, with revenues (overwhelming majority of that being property tax for Gelndale) offsetting expenditures - capital projects, cost of services, and of course debt service.

What's the municipal mill rate for Glendale? That $21 billion rakes in 0.5% of that each year in revenues?

As we now know, having property values drive revenues is very risky, especially in Arizona. The fact that Glendale is trimming services like police and fire is a pretty good sign that they're in far over their heads with the debt they already have. The only guarantee for these new bonds seems to be parking income from 5000 previously-free spots at a mall, so the city is adding an enormous amount of risk.

We also know Moody's is not exactly the greatest judge of credit worthiness (subprime mortgage-backed securities anyone?) Whether COG gets downgraded or not, it will struggle. Especially in the short term when it's virtually guaranteed that increased debt service on new bonds will be far higher than short term parking income, meaning tax funds will go to pay bonds in the short term, so increased revenues (sell off of assets) or more service cuts will be absolutely necessary.

 

[Tommy Hawk]

So the city's tax base is $20.6 billion. Any downswing in property values will drop the tax base (like that hasn't happened anywhere the past couple of years, Vegas anyone?) and therefore drop the tax revenues.

CoG may not be in as bad a shape as many but throwing things out like "they are at the median" and "average" do not give warm fuzzies especially when the entire statistical population has dropped.

 

[aj8000]

Someone please correct me if i have this assumption wrong, I'm not fully versed with the Muni bonds.

If the Cog issues a $100m bond on a 30 year term at 7%, am i right in stating the total cost will be $310 million?

No you are incorrect,

Annual payments compounded annually the total cost would only be $241,759,210.50. If they made more payments in a year the total cost would drop somewhat,

 

[aj8000]

Depends on your standard. Even with the huge drop in housing values the COG's balance sheet shows assets of >$21B and total debt of ~$1B (that includes the $100M bond proposal in the latest lease). Credit rating is stellar.



Based on what? Asset-to-debt ratio ~5% after going through one of the worst economic crisis in the last 70 years speaks very well for the city's fiscal responsibility. It had the foresight in good times to set aside revenues that allowed it to pay off debt early and soften the blow when the economy took a crap.

The balance sheet means nothing. It is debt serviceability that matters based on revenues. I do not know what accounting policies they use in Arizona for municipalities or what makes up the 21 billion; however, many assets owned by municipalities are not available to fund on going operations.


After seeing you last post, assessed value means even less when it comes to this deal. I took a quick look at the financial statements and the COG looks like they only have around 800 million invested in capital assets. This is the amount neted against the related debt for all their capital assets.

 

[AllByDesign]

http://hockeyjobs.nhl.com/teamwork/r.cfm?i=33164

Coyotes announce job fair in February (Yotes, NBA Suns, MLB Diamondbacks, ASU, etc.)

From the article

Saturday, February 12 - Jobing.com Arena

Have your resumes ready for Saturday, February 12 for the Coyotes Sports and Entertainment Career Fair. Several local and area teams, as well as entertainment entities, will be in attendance with career opportunities. Registration fee includes an upper level side/end ticket to the game against the Chicago Blackhawks.

$29 Registration fee

Hey... employment and a game under 30 bucks. It looks like the franchise has cut out the discount tickets afterall.

 

[aj8000]

So the city's tax base is $20.6 billion. Any downswing in property values will drop the tax base (like that hasn't happened anywhere the past couple of years, Vegas anyone?) and therefore drop the tax revenues.

No that is incorrect, lower property values do not affect the total tax revenues of the municipality. Assessed value of property only affects how much of the tax pie you have to pay.

Simple example. we have a municipality with only two properties with a tax value of 1,000 and 2,000 respectively. if they need 1,500 in tax revenue property one would pay 500 and property 2 would pay 1,000 based on there assessed values. it doesn't matter what assessed value I use as long as they are comparable. Assessing the properties at $1 and $2 dollars would still result in property taxes of $500 and $1,000 respectively. I could use 100 million and 200 million. and end up with the same result.

Now if the properties drop in price due to the recession, they may not drop at the same rate; therefor in my example, property one after the new assessment date may be 500 and property two may be 1,900. If I need 1,500 in taxes, I the pie has just shifted property one would only pay 312.50 in taxes and and property 2 would pay 1187.50.

In a nut shell when your property is assessed, it doesn't matter what number they use, what matters is that your property in relation to your neighbors is consistent. ie if you neighbors house would sell for twice yours then his assessed value should be about double

 

[RR]

You can't use simple debt-to-equity ratios for municipalities. Any government agency has to work on a year-to-year basis, with revenues (overwhelming majority of that being property tax for Gelndale) offsetting expenditures - capital projects, cost of services, and of course debt service.

What's the municipal mill rate for Glendale? That $21 billion rakes in 0.5% of that each year in revenues?

As we now know, having property values drive revenues is very risky, especially in Arizona. The fact that Glendale is trimming services like police and fire is a pretty good sign that they're in far over their heads with the debt they already have. The only guarantee for these new bonds seems to be parking income from 5000 previously-free spots at a mall, so the city is adding an enormous amount of risk.

The original question was: "Isn't CoG already in massive debt? I would just wonder what their current credit worthiness is?" The Moody's report presented an opinion on the answer to that question.

We also know Moody's is not exactly the greatest judge of credit worthiness (subprime mortgage-backed securities anyone?) Whether COG gets downgraded or not, it will struggle. Especially in the short term when it's virtually guaranteed that increased debt service on new bonds will be far higher than short term parking income, meaning tax funds will go to pay bonds in the short term, so increased revenues (sell off of assets) or more service cuts will be absolutely necessary.

The original poster made an assertion that he suspected the COGs credit rating likely will be downgraded eventually anyway, without giving any reasons. Now we know your opinion as to why. All I was looking for.

 

[Tommy Hawk]

No you are incorrect,

Annual payments compounded annually the total cost would only be $241,759,210.50. If they made more payments in a year the total cost would drop somewhat,

Actually, you are incorrect. Bonds do not work like a car payment where you are paying down principal as well as making interest payments. Bonds are interest only payments with a balloon payment to retire them. They may not be able to pay down any of the prioincipal or retire any of the bonds early, it depends on the terms when the bond is issued.

No that is incorrect, lower property values do not affect the total tax revenues of the municipality. Assessed value of property only affects how much of the tax pie you have to pay.

Simple example. we have a municipality with only two properties with a tax value of 1,000 and 2,000 respectively. if they need 1,500 in tax revenue property one would pay 500 and property 2 would pay 1,000 based on there assessed values. it doesn't matter what assessed value I use as long as they are comparable. Assessing the properties at $1 and $2 dollars would still result in property taxes of $500 and $1,000 respectively. I could use 100 million and 200 million. and end up with the same result.

Now if the properties drop in price due to the recession, they may not drop at the same rate; therefor in my example, property one after the new assessment date may be 500 and property two may be 1,900. If I need 1,500 in taxes, I the pie has just shifted property one would only pay 312.50 in taxes and and property 2 would pay 1187.50.

In a nut shell when your property is assessed, it doesn't matter what number they use, what matters is that your property in relation to your neighbors is consistent. ie if you neighbors house would sell for twice yours then his assessed value should be about double

Not sure where you live but the assessed value of a property is multiplied by a tax rate to determine a tax bill. They do not go "gee, I am spending $2,000 so you pay x and you pay y". If the tax rate remains the same and the assessed value falls, tax revenue falls. Increases in tax rates for property taxes usually requires approval from the voters/city council/etc., depending on where you live. This is why governments are struggling right now, the tax base is falling.

Same principal with sales tax. If sales within an area fall, the revenue provided by taxes on those sales declines as well.

 

[Tommy Hawk]

We also know Moody's is not exactly the greatest judge of credit worthiness (subprime mortgage-backed securities anyone?) Whether COG gets downgraded or not, it will struggle. Especially in the short term when it's virtually guaranteed that increased debt service on new bonds will be far higher than short term parking income, meaning tax funds will go to pay bonds in the short term, so increased revenues (sell off of assets) or more service cuts will be absolutely necessary.

Actually, they could do zero coupon bonds or low interest coupons and sell the bonds at a discount, thus decreasing their annual debt servicing cash flow by pushing it to the end of the term so in 30 years, those who inherit the mess get screwed.

The basic thing is they need to raise $100 mil and if they do that by issuing $500 mil of zero coupon bonds, then so be it. MH is a hedge fund guy so he knows all the ins and outs of this crap.

 

[LadyStanley]

aj - not all states/municipalities allow property tax increases as you state.

California, for instance, has set a very slow increase on property taxes based on Prop 13 voted in about 30 years ago.

So, the fact that I bought my place for $100k, and my neighbor 20 years later for $400k means that my tax liability is about 25% of theirs.

Regardless of the (bank) assessed value.

 

[King Woodballs]

aj - not all states/municipalities allow property tax increases as you state.

California, for instance, has set a very slow increase on property taxes based on Prop 13 voted in about 30 years ago.

So, the fact that I bought my place for $100k, and my neighbor 20 years later for $400k means that my tax liability is about 25% of theirs.

Regardless of the (bank) assessed value.

No wonder that state is broker then broke

 

[aj8000]

Actually, you are incorrect. Bonds do not work like a car payment where you are paying down principal as well as making interest payments. Bonds are interest only payments with a balloon payment to retire them. They may not be able to pay down any of the prioincipal or retire any of the bonds early, it depends on the terms when the bond is issued.

I am calculating these as municipal debentures as sold in Manitoba, Canada which are interest and principal payments. If they are interest only bonds being sold you are correct.

Not sure where you live but the assessed value of a property is multiplied by a tax rate to determine a tax bill. They do not go "gee, I am spending $2,000 so you pay x and you pay y". If the tax rate remains the same and the assessed value falls, tax revenue falls. Increases in tax rates for property taxes usually requires approval from the voters/city council/etc., depending on where you live. This is why governments are struggling right now, the tax base is falling. Same principal with sales tax. If sales within an area fall, the revenue provided by taxes on those sales declines as well.

No disrespect intended, but I am correct, I audit Municipalities for a living, and I suspect that most run the same. The tax rate would never stay the same since the costs to run the municipality do not drop because assessed value drops.

I was simplifying my example; however, if you wish, I can make it more complex.

Each municipality makes a budget that determines the amount of revenue they require for the up coming year. In my example, the budget requirement from property taxes was $1,500.

If property values drop the required budget is still $1,500 (or more)

Municipalities (at least here) assess taxes taxes based on a mil rate. (per 1,000 of assessed taxable value).

Therefore, in my example (ignoring the adjustment to assessed value due to the property type to get the taxable assessment). The assessed value for my example was 3,000; therefore the mil rate is 1,500/(3000/1000) or 500 per mil

So property one pays 1000/1000*500 = 500;
So property two pays 2000/1000*500 = 1,000

The second part of my example is that the total assessed value for my fictional municipality dropped to 2,400 (500 and 1900)

The municipality still needs 1,500 in property taxes; therefore, they mil rate for the current year is now 1,500/(2,400/1,000) or 625 per mil

So property one pays 500/1000*625 = 312.50;
So property two pays 1900/1000*625 = 1,187.50

As for increase in taxes needing approval from voters, you are correct, they have a public hearing every year and approve the new budget. Which happens all the time with little issue from the rate payers. BTW, my example does not increase taxes it only redistributes them based on the property values.

 

[aj8000]

aj - not all states/municipalities allow property tax increases as you state.

California, for instance, has set a very slow increase on property taxes based on Prop 13 voted in about 30 years ago.

So, the fact that I bought my place for $100k, and my neighbor 20 years later for $400k means that my tax liability is about 25% of theirs.

Regardless of the (bank) assessed value.

I didn't increase taxes, I just redistributed the taxes based on assessment which happens all the time. Are you saying that Glendale has a similar prop 13? Winnipeg has had a property tax freeze in place for several years; however, my taxes move depending on how my house value increases or decreases based on the new city assessment.

Your example still works with my example, the only difference is that they do not update your property taxes based on the new perceived assessed value. They only update the assessed value based on actual sales. I am willing to be that your property taxes have not stayed the same during that period.


One question is, if you bought your house for 100,000 and is now worth 50,000, you would pay taxes on the property based on 100,000?
I am not talking about "bank" assessed value, I am talking about municipal assessed value.

I took a quick look at the Glendale budget, Assessed value has been increasing over the last few years and the have had a small decrease in the tax rate a couple of years ago. Other than that they have been holding the tax rate the same; therefore, there is not enough information to determine if they have a "prop 13" law. They do not charge based on 1,000 of assessed value, they use per $100 BTW.

 

[MaskedSonja]

Wow. I didn't realise my question about CoG's credit worthiness would open such a can of worms!

 

[ps241]

Actually, they could do zero coupon bonds or low interest coupons and sell the bonds at a discount, thus decreasing their annual debt servicing cash flow by pushing it to the end of the term so in 30 years, those who inherit the mess get screwed.

The basic thing is they need to raise $100 mil and if they do that by issuing $500 mil of zero coupon bonds, then so be it. MH is a hedge fund guy so he knows all the ins and outs of this crap.

very nice tit for tat with some boys skilled at the bonds, muni politics, city accounting etc etc.......topics that usually make me want to jam a screw driver in my eye socket for some relief

on a serious note "if" and its a big if........GWI were to file a suit that was against management fees and perhaps wrapped the parking issue into the challenge would it impact the ability for a city to raise money with the bond......would the market wait for the lawsuit to run its coarse, would it be factored into the pricing, or would it be a non factor?

 

[Tommy Hawk]

I am calculating these as municipal debentures as sold in Manitoba, Canada which are interest and principal payments. If they are interest only bonds being sold you are correct.

No disrespect intended, but I am correct, I audit Municipalities for a living, and I suspect that they all run the same. The tax rate would never stay the same since the costs to run the municipality do not drop because assessed value drops.

I was simplifying my example; however, if you wish, I can make it more complex.

Each municipality makes a budget that determines the amount of revenue they require for the up coming year. In my example, the budget requirement from property taxes was $1,500.

If property values drop the required budget is still $1,500 (or more)

Municipalities (at least here) assess taxes taxes based on a mil rate. (per 1,000 of assessed taxable value).

Therefore, in my example (ignoring the adjustment to assessed value due to the property type to get the taxable assessment). The assessed value for my example was 3,000; therefore the mil rate is 1,500/(3000/1000) or 500 per mil

So property one pays 1000/1000*500 = 500;
So property two pays 2000/1000*500 = 1,000

The second part of my example is that the total assessed value for my fictional municipality dropped to 2,400 (500 and 1900)

The municipality still needs 1,500 in property taxes; therefore, they mil rate for the current year is now 1,500/(2,400/1,000) or 625 per mil

So property one pays 500/1000*625 = 312.50;
So property two pays 1900/1000*625 = 1,187.50

As for increase in taxes needing approval from voters, you are correct, they have a public hearing every year and approve the new budget. Which happens all the time with little issue from the rate payers. BTW, my example does not increase taxes it only redistributes them based on the property values.

No disrespect intended but you are incorrect. Municipalities do not calculate the taxes owed as you indicate. They are set set as a percent of the muncipality budget. If they did, none of them would ever be in any financial trouble but we know that is not true. Tax rates are set as a percent of the assessed property value, which is not the appraised value. It is also not the historical value or the purchase price.

Tax rates are also controlled. If the tax revenues will not meet the budget expectations then one of three things happens. 1) They reduce the budget by cutting services. 2) Increase the tax rate, 3) Operate at a deficit and hope you get a surplus in a future year(s).

I do not audit them but i consult with them on how to manage their costs in order to avoid trying to push through tax increases. I also have several friends in various departments and we always talk about the budget process.

Did you ever notice that when municipalities have budget shortfalls (which would never happen in your example) that police write more tickets??

 

[aj8000]

No disrespect intended but you are incorrect. Municipalities do not calculate the taxes owed as you indicate. They are set set as a percent of the muncipality budget. If they did, none of them would ever be in any financial trouble but we know that is not true. Tax rates are set as a percent of the assessed property value, which is not the appraised value. It is also not the historical value or the purchase price.

Tax rates are also controlled. If the tax revenues will not meet the budget expectations then one of three things happens. 1) They reduce the budget by cutting services. 2) Increase the tax rate, 3) Operate at a deficit and hope you get a surplus in a future year(s).

I do not audit them but i consult with them on how to manage their costs in order to avoid trying to push through tax increases. I also have several friends in various departments and we always talk about the budget process.

Did you ever notice that when municipalities have budget shortfalls (which would never happen in your example) that police write more tickets??

Fine, not going to argue with you. Please disregard my previous comments then. It appears that the Province of Manitoba is completely backwards when it comes to municipal tax rates since we are the only ones that tax the way I have indicated. I think the COG will need to update their website to conform with your analysis.


I guess it appears that we are both correct, the operating budget taxes would drop; however, the taxes to repay debt would be increase to cover such debt since the secondary taxes are not regulated. Since we are taking about secured debt, the secondary taxes would increase as I indicated


Where do you live BTW?

Here is some light reading from the COG website

What is “assessed valuation” and how does it relate to my taxes and the city’s budget?
Each year the Maricopa County Assessor’s Office determines the value of all property within the county, including city buildings and individual homes. These assessment values are then used as a basis for levying property taxes. The City of Glendale charges $1.72 in property tax per $100 of assessed valuation (0.3396 primary rate and 1.3804 secondary rate). The median home value, according to the Maricopa County Assessor’s Office, in Glendale is $133,500, and the average amount of property tax collected by Glendale for that home is $230.

Primary Tax: Arizona law limits the primary property tax levy amount and municipalities may use revenue from this tax for any lawful purpose. Glendale’s FY 2004 primary property tax rate is $0.3396 per $100 of assessed valuation.

Secondary Tax: Arizona does not limit the secondary tax levy amount and municipalities may only use this levy to retire the principal and interest or redemption charges on bond debt. Glendale’s FY 2004 secondary tax rate is $1.3804 per $100 of assessed valuation.