The city council formally approved a quarter percent interest rate hike that had already been negotiated between RED Development and its preferred bank, said City Manager Shaun Carey.
The change will result in approximately $100,000 more in interest charged per year for the subordinate Sales Tax Anticipated Revenue (STAR) bonds for the developer.
Councilmen reached their original agreement on the STAR bonds on May 5, when they approved up to $40 million in bonds for the developer at a 2.75 percent interest rate. The new rate is 3 percent. The loan's interest rate hike was approved as an emergency item at Monday's meeting, eliminating the need to hold a second reading of the change.
Marina Cove resident Don Young, a retired employee of the city and long-time opponent of the hotel-casino within The Legends project, spoke against the change.
"Why are we granting another $100,000 per year to this development?" Young asked. "That would pay for the salary of another police man or fire fighter. I'm just questioning the wisdom of this."
Martini defended the council's action.
"Very few projects are of this magnitude," Martini said. "About 300-400 jobs have been created because of this project, and it will create another 500 jobs in the future. That would explain why, in a hard economic downturn, we would want to invest in this."
Legends is set to feature up to 100 attractions - including the T-Rex Dinosaur Experience and Restaurant, Scheels All Sports store, Corona Mexican Cantina, America's Roadhouse, the Hot Dog Hall of Fame, BCBG Max Azaria, a Hotel-Casino-Spa and convention center, and possibly an indoor area for minor league sporting events and concerts, among many others.
Sparks City Councilmen had approved three means to finance the $1 billion project set to open in late September.
Councilmen established Local Improvement District (LID) No. 3 - an area encompassing the Legends development and Legends Casino-Hotel-Spa - where taxes will be collected to fund improvements on the property.
Councilmen gave the go-ahead to seek public financing through Limited Obligation Improvement bonds funded by the LID, and STAR bonds.
Developer-issued subordinate STAR bonds will allow the developer to fund private construction work. In June, up to $90 million in senior STAR bonds will be issued, and up to $40 million in subordinate STAR bonds will be issued.
"The STAR Bonds are to fund costs of the development, primarily within the retail and entertainment core, including support of the costs of construction of the Scheels All Sports store," according to a legal summary given to the council.
Senior STAR bonds are issued by the city, said Greg Herrington, city financial advisor. The tax revenue collected from the development will pay off the senior bonds first.
The LID Bonds are funded by tax assessments on the Legends and Olympia Gaming casino properties in the new local improvement district (Legends at Sparks Marina.)
"The LID bonds are like a super-mortgage; they involve a real estate transfer," said attorney John Murphy at a previous redevelopment agency meeting explaining the financing. "The STAR Bonds involve a revenue transfer. Investors ask, 'what is the value of the property today?', and 'What is liable to happen to the value of the property in the future?' Investors are interested in the enhancement to the value of the land."
As the contractor puts in roads and utilities, they will be reimbursed by the city for these costs - estimated at $26 million. Since these are public infrastructure, they will be owned by the city.
All bonds will be repaid through sales tax, because it is illegal to use property taxes in this kind of funding agreement, financial staff said.
The finance staff stated clearly that LID Bonds are different from General Obligation Bonds, in that the city and taxpayers will not be responsible for repaying the bonds, should the development fail to meet its high sales tax expectations.
"The fact is, there bonds are limited obligation bonds - not general obligation bonds," said Adam Mayberry, Sparks public information officer, during a previous meeting dealing with the same issue. "If the tax revenues fall short of projections, they taxpayers and the city will not be held liable for that. If the (tax) revenues aren't there to pay the bonds, they simply don't get paid, or the investors would have to wait longer to get paid. That's the bottom line."
So much for what the law says.