Taxing Question

Law allows tourism authority to tap $1 billion for stadium construction

In a sleight of hand that would make Cardinals quarterback Jake Plummer proud, the Tourism and Sports Authority says if necessary it can tap all of the hotel and car rental taxes it collects to pay for stadium construction bonds before any funds flow to tourism, Cactus League and youth sports.

The amount of money at stake is huge.

The TSA quietly is pledging to bond underwriters every dime of the $1 billion it is projecting to collect over the next 30 years from hotel and car rental taxes to first repay construction of the Arizona Cardinals football stadium.

TSA president Ted Ferris
TSA president Ted Ferris

The pledge raises the possibility that in the event of construction cost overruns that are TSA's responsibility, additional bonds could be sold and repaid from tax funds earmarked for tourism promotion, the Cactus League and youth sports.

Senate Bill 1220, which was approved last November by voters when they narrowly passed Proposition 302, appears to limit the amount of money from hotel and car rental taxes that could be spent on repaying stadium construction bonds to $165.5 million, plus interest.

The law states that after TSA has spent $165.5 million from the hotel and car rental tax funds, those taxes are to be earmarked for tourism promotion, the Cactus League, the TSA's operating expenses and, finally, youth and amateur sports.

However, another provision of the bill that received little attention allows TSA to use all revenue it collects for repayment of construction bonds.

"All revenues are pledged to debt service first," says TSA chief financial officer Charles Foley.

TSA president Ted Ferris says the authority can "circle back" and tap hotel and car rental taxes a second time if the initial $165.5 million plus additional funds generated from NFL income taxes, state sales taxes and revenue generated at the stadium are insufficient to cover construction bond debt.

TSA bond consultant Kurt Freund says TSA would not tap into funds earmarked for tourism, Cactus League or youth sports unless it was facing a default.

"The only way you would go into that situation is if revenues were not sufficient to cover the bonds," Freund says.

In the last four months, TSA has increased the amount of construction debt it plans to issue to $245.5 million, up from $238 million in June.

TSA also is privately telling bond underwriters that the cost of the stadium could increase to as much as $361 million, up from the $331 million that was promised voters before last November's Proposition 302 election. The Arizona Cardinals are contributing a maximum of $85 million to build the stadium.

Three key legislators say it was not their intent to allow the TSA to spend more than $165.5 million of hotel and car rental taxes to pay for construction of the stadium.

Senate President Randall Gnant says he believed the law limited access to hotel and car rental taxes. Gnant has strongly objected to TSA's selection of the Tempe site.

Senate Finance Committee Chairman Scott Bundgaard says the Legislature was "misled by TSA proponents" who stated that only $165.5 million in hotel and car rental taxes would be used to repay construction of the stadium. Bundgaard strongly supported the west side location for the stadium that was presented by developer John F. Long.

"What the public was told by the proponents and what is actually occurring are two separate things," he says. "This needs to be cleaned up or this whole project needs to be done away with."

House Judiciary Committee Chairwoman Roberta Voss says the Legislature intended to place a cap on construction spending from the hotel and car rental taxes.

"There was no way they were supposed to come back and tap those funds," Voss says.

Voss and Bundgaard say the TSA spending plan could be dragged into next month's special legislative session on the hemorrhaging state budget.

"I think people are very frustrated with the TSA," Voss says.

Not only were key legislators caught off guard by TSA's spending priorities, the authority's treasurer knew nothing about the plan until told by New Times Tuesday morning.

"What can I say?" TSA board member Rod Williams said.

Williams also says he was never informed that TSA was telling bond underwriters that the cost of the stadium could increase to $361 million.

Williams says he still assumed the cost of the stadium was set at $331 million, since that is what voters were told it would cost.

"The public was led to believe it was $331 million," Williams says.

Williams says the higher cost estimate conflicts with assurances the board was given by Robert Hunt, chairman of Hunt Construction Company, that the stadium could be built for $331 million.

"I asked Hunt that at a public meeting at the Biltmore [hotel]," Williams says. "His answer was yes."

Calls to Hunt seeking comment were not returned.

Williams isn't alone in believing the stadium was supposed to cost closer to $330 million rather than $361 million. Maricopa County voters last year were told in the county's election publicity pamphlet distributed prior to the November 8 Proposition 302 election that the cost of the stadium would not exceed $331 million.

TSA officials are now saying that voters should have interpreted the $331 million cost as merely a projection.

"There isn't any language in the [law] that specifically locks the stadium to $331 million," says TSA's Foley. "It would be unreasonable to expect what the cost of the stadium would be at that point."

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