What they said in 2006
Financial Implications:
The Definitive Agreement between Cabela’s and the City of Reno, as
approved January 11, 2006, creates a potential obligation to issue up
to $54,000,000 in public bonds. Bonds to be issued could include RDA Tax
Increment Bonds, NRS Special Assessment District (SAD) Bonds, and Star
Bonds (both taxable and tax exempt). Pursuant to the agreement, Cabela’s
would purchase the STAR bonds. Hence, by both legislation and agreement,
the STAR bonds would not constitute a liability to the City’s General
Fund and in the event that revenues are not sufficient to meet debt service,
the bond holder (initially Cabela’s) would not receive bond payment.
Further, pursuant to NRS 271A.120(2), any insufficiency in the amount
to make bond payments shall be deemed to not constitute a default under
the STAR bonds. In addition, with respect to RDA Tax Increment and Special
Assessment District financing, the City Council will be required, prior
to any debt issuance, to make certain findings. The Agreement specifically
preserves the Council’s legislative powers with respect to all financial
and policy findings and determinations. (Staff report
dated 9-13-2006 in support of Agenda Item
I.1 before the Reno City Council
on 9-14-2006, emphases added.)
What
they say today
"Also required, and
will be presented at the July 11 Council meeting, is an agreement with
the Department of Taxation outlining the distribution methodology which
will be used to ensure the sales and use tax revenues from the Cabela's
project per the STAR legislation are made available to the City of Reno
to pay debt service on the STAR bonds."
(Staff Report in support of agenda item
I.5 before the Reno City Council
on June 27, 2007, page 251)
"Some general conditions
which Cabela's must meet prior to bond issuance which will be detailed
further detailed in the financing agreement include:
"...2) Cabela's
must fund a debt service reserve in the amount of approximately $2,500,000
which will be held in an interest-bearing account by the City.
" 3) Cabela's
will covenant, in writing, that it will not open another Cabela's store
within 150 miles of the Reno store location....
"No General Fund pledge
is allowed. If actual sales tax increment is insufficient to pay debt
service, the City will not be in default, per STAR Bond legislation. Even
so, staff feels that it is prudent to require the creation of a cash funded
reserve to be used for debt service in the event of a revenue shortfall.
Staff recommends a combined reserve of approximately $2,500,000 or half
of combined maximum annual debt service. This cash reserve would be funded
by Cabela's and would be set aside in an interest-bearing account held
by the City. Additionally, staff is proposing a 1.05 times coverage requirement
as a further precaution. Building in reserve and coverage requirements
will make this transaction similar to other bond transactions completed
by the City."
(ibid. at 253)
ALL OF WHICH
RAISES SERIOUS QUESTIONS: If the city is off the hook financially,
why is City Hall acting as though general fund taxes are on the hook?
Probably because Reno taxpayers are indeed on the hook. They will pay
indirectly if Cabela's defaults and thus negatively impacts the city's
bond rating, which means a substantial increase in the cost of future
borrowing to finance municipal projects. Notwithstanding state law passed
in typical corporate welfare compliance, what is to stop stiffed bondholders
from suing the city for payment since the bonds were sold under city auspices?
(A section in the proposed bond ordinance seems to facilitate bondholder
legal action against the city.) If the city has not been taken off the
hook by such a sterling corporate citizen, why is the city controlling
corporate cash and acting like a partner as well as a bank?
AND THE
BIGGEST QUESTION OF ALL: If followup research shows that most of Cabela's
customers are NOT TOURISTS, why is there no safeguard in the agreement
to unwind the welfare package? As the following reports show, the underlying
premise of tourism business was based on pure speculation leavened with
political juice. If Cabela's cannot do what it says it will, that constitutes
breach.
What
the Reno Gazette-Journal reported on 9-14-2006
Council
approves 244-acre special bond district
By Susan Voyles
(SVOYLES@RGJ.COM)
Copyright © 2006 RENO GAZETTE-JOURNAL
A special bond district for Cabela's to benefit from sales tax dollars
goes far beyond the outdoor retailer's 30 acres at Boomtown and includes
another 134 acres of vacant commercial land owned by the hotel-casino.
The size of the large district was negotiated months ago to give the
Reno City Council the maximum flexibility in making projects eligible
for sales tax anticipated revenue (STAR) bonds at Boomtown, said City
Manager Charles McNeely.
The council on Wednesday gave initial approval of an ordinance to create
a 244-acre district. At Councilman Dave Aiazzi's request, the city attorney
will remove 10 acres zoned multi-family from the district. Of the remaining
234 acres, Boomtown officials said at least 30 percent includes Interstate
80 so that a new freeway interchange can be a project funded with the
sales tax dollars.
Cabela's expects the city to issue up to $54 million in public bonds
on its behalf. Up to 75 percent of the sales tax revenue generated by
Cabelas's will be used to pay the bonds, making Cabela's liable for
the debt and not the city.
Constituent support
Councilwoman Jessica Sferrazza, who voted last year against putting
Cabela's in a redevelopment district, said even 25 percent of the sales
taxes from Cabela's would generate more money than putting a Wal-Mart
there. And she said a number of her constituents want to shop there.
For those reasons, she voted in support of the STAR bond district. Created
in 2003 by the Legislature for Cabela's, the law allows businesses that
draw a preponderance of customers from outside the state to keep 75
percent of their sales taxes for infrastructure for their stores.
This is the first creation of a STAR bond district in Nevada. The council,
the Nevada Commission on Tourism and Gov. Kenny Guinn had to issue a
finding that Cabela's will get most of its customers from out of state.
Other businesses seeking STAR financing in the district will have to
pass those same tests. None are knocking at the door at this time, Boomtown
officials said.
Vivian Freeman, running against Councilwoman Sharon Zadra in Ward 2,
attended the hearing but did not address the council. She
issued a written statement Wednesday opposing the tax subsidy, saying
Nevada communities "do not have to give away the kitchen sink"
to draw business.
Mayor Bob Cashell and Councilman Dan Gustin abstained from voting because
their companies do business with Boomtown.
What
the Reno Gazette-Journal reported on 6-29-2006
Tourism
officials OK tax break for Cabela's
By Ryan Randazzo
Copyright ©
2006 RENO GAZETTE-JOURNAL
State tourism officials agreed
Wednesday to a tax break for Cabela's outdoor retailer at Boomtown Reno,
but suggested an agreement that the company not build another store
within 150 miles of town.
The massive outdoor retailer
planned off Interstate 80 and west of the Boomtown hotel-casino is applying
to use sales tax anticipated revenue bonds, which allow it to direct
75 percent of sales taxes to pay off the development. The Nevada Commission
on Tourism agreed Wednesday the plan is appropriate because more than
half the business will come from out of state, a requirement for so-called
STAR bonds.
Cabela's Real Estate Director, Kevin Rhodes, told the commissioners
that during the life of the bonds, the company could agree not to build
another store within 150 miles of Reno. The suggestion came after Commissioner
Ray Pearson asked about Cabela's growing "too big" and too
close to Northern Nevada, and the possibility of diluting sales in Reno.
"Is that going to be the deal?" Commissioner Chuck Scharer
asked Rhodes.
Reno consultant and project manager John McIntyre replied for Rhodes
that it would be up to the Reno City Council to negotiate such an agreement,
but that Cabela's expansion plans are important to the city. The company
has 14 stores and another 14, including Reno, on the way.
New Commissioner Howard Reinhardt then asked about other Western store
locations, and if such an agreement would only mean Cabela's would build
a store just beyond the 150-mile limit.
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UPDATE
6-7-2007
Cabela's
Inc. at Piper Jaffray 27th Annual Consumer Conference
The key segment about
expansion into California comes in the question and answer section
at the end, specifically between 23:52 and 24:17.
Cabela's CEO Dennis Highby’s actual quote: "When
we do go to California, we’re not going to just open one
store. We believe that it’s important when we go to that
state that we have several stores that we open in a very short
period of time so we're working on it right now."
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"There
is a point you have to draw the line," Rhodes replied. "At some
point in the future we plan on building in California."
The store can keep $69 million
in sales taxes collected at the store to pay off bonds for the development
under a plan approved by the Washoe County School District. Such taxes
normally would fund public services such as education.
With Wednesday's endorsement from the Nevada Commission on Tourism,
the plan needs just a signature from the governor and for the Reno City
Council, which developed and already approved the plan, to enact an
ordinance creating the special tax district.
Not only will Cabela's retain 75 percent of its sales taxes, but
because it is located in a new redevelopment area, most of its property
taxes will be returned to the area for reinvestment in the business
community.
The $14.3 million in Cabela's
property taxes returned to the redevelopment district and the sales
taxes total $83.7 million through 2028, when the bonds would be paid
off, according to a report prepared for the city. [Emphases added]
NEVADALABOR.COM
SPECIAL REPORT: What the Reno City Council said on June 14, 2006
Councilmember David Aiazzi
noted that the next step, should the council approve the agenda items
before it, would be to forward the issue to the Nevada Commission on
Tourism. If the commission signs off, it goes to the governor for approval
of the STAR bonds and then back to the council.
He mentioned something about a 150-mile (market protection?) radius
which is apparently noted in the Meridian Business Advisors report.
Former Washoe County Manager John McIntyre has been hired as
consultant to the city on this project and made a PowerPoint presentation.
Councilmember Dan Gustin questioned the viability and longevity
if Cabela's opens up in California. Press reports have noted that they
plan to do so. (Reno Gazette-Journal May 11, 2006)
Gustin added that he thinks
the "overall benefit to the community is there," but questioned
the exclusivity (in light of potential California stores) and 20-year
viability (the term of the bonds).
Councilmember Sharon Zadra asked Mr. McIntyre for the history
of STAR bonds and legislative intent. He read from (2005) Senate Bill
306 recitals that they are strictly for economic development and tourism.
An analysis of the bonds was presented to the council on April 26. Costs
and revenues were analyzed as a net positive for the Washoe County School
District when new enrollment was factored in, McIntyre asserted.
It will be a net positive to the city over 20 years, McIntyre stated.
Sixty-eight percent of the sales tax increase will be attributable to
tourists, he added.
With respect to displacement of local business, Mr. McIntyre asserted
that "it’s hard to say."
Cabela's has "worked with some displaced businesses in other communities,"
McIntyre stated, but he added that he was not saying that they have
made a commitment to do that here.
The Washoe County School District will, at worst, break even, he asserted.
At best, it will produce a positive impact for the county, he said.
Ms. Zadra asked if anyone can apply for the STAR bonds. Mr. McIntyre
answered in the affirmative.
Councilmember Jessica Sferrazza was informed that under Nevada
Revised Statues 271A, the city has no liability for default of the bonds,
no credit impact.
Mr. McIntyre noted to Councilmember Pierre Hascheff that public
improvement has been considered in the Meridian Business report.
Councilman Aiazzi moved to adopt and pass the staff report. Mayor
Cashell did not ask for a second. It passed unanimously (7-0) despite
the typical parliamentary oversight.
Several members noted that this was not the final decision, that they
were just moving the process along.
_______
"Based
on catalog and Internet sales, Cabela's said 68 percent of its customers
will be Californians who live within 150 miles. City consultant John
MacIntyre said it's safe to assume Cabela's would protect that area
and not build another store within that ring."
(Reno Gazette-Journal 6-15-2006, emphasis added)
_______
At
what cost?
By Ryan Randazzo
Copyright © RENO GAZETTE-JOURNAL June 4, 2006
Cabela's outdoor retailer is nearing its final approval to reap $83.7
million in tax breaks for a Reno store, but competitors are arguing
such subsidies are inappropriate because the stores are spreading so
quickly.
Reno and other cities won't see the tourism boost from massive Cabela's
and Bass Pro Shops they are banking on, opponents argue, because too
many are being built....
But the public relations
campaign initiated by Minnesota-based Gander Mountain, which has stores
across the eastern half of the U.S., is trying to convince public officials
that Cabela's and Bass Pro stores don't deserve the tens of millions
in tax subsidies local governments are providing them to attract tourists....
The city report by Meridian
Business Advisors says the Reno store will generate $50 million in annual
sales, and that 68 percent of that, $34 million, would be California
shoppers.
That assumes 80 percent of the Cabela's online catalog sales within
150 miles of Boomtown would convert to in-store sales. Their logic —
shoppers prefer a store to walk into rather than purchase online.
The report did not consider
what impact new Cabela's or Bass Pro outlets in Northern California
would have on the Boomtown store sales. Besides Bass Pro's plans for
a Sacramento store, Cabela's officials have said they plan several California
stores....
But the anti-subsidy advocates
point to Cabela's last quarterly report filed with the Securities and
Exchange Commission, where the company reported lower sales at its Owatonna,
Minn., store following a new store opening in Rogers, Minn. The Owatonna
store is similar in size to the Reno store, which is larger than a Wal-Mart.
"The numbers in Owatonna have been down slightly, but we planned
for that and they have not been significant," Draper said.
Other doubts
A report from Washoe County Finance Director John Sherman on the store
showed doubts, too.
"Although Cabela's provides compelling evidence for their ability
to draw customers from great distances, this data is both in the past
and in the Midwest," Sherman wrote....
Other
retailers hurt
While Gander doesn't have any Northern Nevada stores, other outdoor
retailers in the region agree the subsidies to Cabela's offer an unfair
advantage.
Reno Fly Shop owner Dave Stanley says he will likely have to close his
business after 23 years once Cabela's opens.
"I can compete on a level paying field, but when the scales are
tilted, I can't," Stanley said. "Having that extra thousands
of dollars a month (from sales taxes) would be an advantage I'm not
going to get."
He said the city and county have to make decisions that benefit them
the most.
"The unfortunate part of that is in the process, the number of
sporting goods stores in town will be impacted by Cabela's. Do I think
it is fair? No. Do I think that matters to anybody in the city or county?
No."
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