The city's Dallas Convention Center Hotel Development Corporation unanimously agreed this afternoon to issue $479.8 million in revenue bonds for the hotel project, locking in an interest yield of 4.69 percent -- well below the parameters of $514 million and 5.5 percent authorized by the city council. Most of the savings are a result of issuing the majority of the debt using Build America Bonds, a federal program that refunds 35 percent of the interest rate.
"We said this would be a good deal for Dallas taxpayers," Mayor Tom Leppert said in a press release. "And with this start, it will be even better!"
Dave Cook, the city's chief financial officer, says the actual closing takes place in two weeks when the funds will be received, but "for all intents and purposes," this seals the deal on the project. Construction is expected to begin one week after the closing, and the hotel's estimated opening is early 2012.
Amidst all the jubilation in the room as documents were passed around for signatures, we sat down with Cook to get two questions answered regarding the methods used by city officials to accomplish the goal of building a publicly owned hotel. We first cited the following section of the city charter:
SEC. 4. REVENUE BONDS.
The city shall have the power to borrow money for the purpose of constructing, purchasing, improving, extending or repairing of public utilities, recreational facilities, off-street parking facilities or any other self-liquidating municipal function not prohibited by the Constitution and laws of the State of Texas, and to issue revenue bonds to evidence the obligation created thereby. Such bonds shall be a charge upon and payable solely from the properties, or interest therein, pledged, or the income therefrom, or both, and shall never be a debt of the city. All such bonds shall be issued in conformity with the laws of the State of Texas.
And, as we all know, the city is ultimately on the hook for any losses from the hotel, as Standard & Poor's spelled out while rating the bonds earlier this month.
The primary credit factor, however, remains the city-council-adopted resolution, in which general fund appropriations will be considered to cover any deficiencies.
Essentially, my question was along the lines of: WTF?
"These aren't city revenue bonds," Cook said. "These are bonds issued by this corporation authorized by officers of the corporate meeting we just had."
Which is the city essentially. Right?
"It's a corporation of the city."
So that's your way around it?
"I wouldn't say that. It's not around anything. It's a local government corporation."
But you're saying it's not the city. That's what you're saying?
So, in summary, the city set up a corporation run by city officials that meets at City Hall and received its credit from the city, but it's not the city.
With that squared away, it was time to drop bomb No. 2. When the city refinanced the convention center earlier this year, it didn't meet the city's own criteria for refinancing. We knew this but asked if it was the case.
"What criteria?" Cook asked with a puzzled look on his face.
Isn't there criteria the city has before it can refinance bonds?
Cook paused for a few seconds. "There's no requirements."
After another pause, he suddenly remembered: "Oh, when we do refinancing for savings because of the changes in interest rates, it's the net present value criteria. Yes. The city has a set of financial management performance criteria."
Did it meet that?
"It did not. It did not."
He explained the three reasons why the convention center's debt was refinanced, which we've covered at length, but they were to lower the annual debt payments on the center to relieve stress on the general fund, generate cash for capital improvements to the center and change the hotel occupancy tax pledge to remove the convention center hotel from the debt on the center to the hotel's own debt payments.
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So, even though there's criteria, it doesn't have to meet it?