The Misguided Ongoing Legacy of Our “Improvement” Districts, City Bonds and TIFs
A recap of our recent reporting plus bonus content.
We don’t often venture into complex economic schemes, but can you imagine a second a Northern Nevada without its improvement districts?
These have created parallel, opaque power structures skirting the normal rules and benefiting the few to the detriment of the community. Meanwhile, their complicated financing schemes have produced dismal results as well, repeatedly reducing money available for public services while hamstringing budgets.
Take for one Star (Sales Tax Anticipated Revenue) Bonds, which have a long and troubled history in Northern Nevada.
These came about after a state bill was passed in 2005 to facilitate tourism oriented projects as part of Tourism Improvement Districts, whereby developers and their city backers could borrow against projected but yet to be collected sales tax revenue.
The lone no vote in the Senate at the time was from Barbara Cegavske, who later became a Republican Secretary of State. The lack of foresight from the other elected representatives at the time is scary, unless that was their aim all along.
Simply put, these mechanisms benefit large corporations at the expense of taxpayers.
Details of the bill indicated that for any new retail-based projects which believed a majority of their business would come from out of state tourists, then these would be eligible to keep up to 75 percent of the generated sales taxes to pay off the STAR bonds used to finance the project.
Following this bill, the City of Reno and City of Sparks issued these STAR bonds for several projects, including the Legends at Sparks Marina project and Cabela’s in Reno.
As a Redditor explained last year “Sales Tax Anticipation Revenue bonds — or STAR bonds — allowed local governments in Nevada to borrow against projected sales-tax revenues inside of a special tourism district… FREE Business and money for big box retailers.”
What happens is that within this framework sales tax revenue goes to pay for the retail development rather than much needed city programs and services. This corporate type of welfare also creates a vehicle for minimum wage type jobs rather than well paid ones.
Accentuating the problem is when Sparks saw big box stores move to the Outlets at Legends, so that their own sales taxes would go toward paying off the debt rather than helping with Sparks city services.
It’s also risky, as evidenced by the Great Recession or COVID shutdown, when these businesses slow down vertiginously and don’t deliver promised results.
A legislative effort to ban Star Bonds was vetoed by then governor Steve Sisolak in 2021 when he said the state needed to keep all its available tools for a post Covid economic rebound.
In terms of Cabela’s, in Verdi, one reader looking through recent Reno documents expressed alarm.
“The City of Reno gave them $34 million to build it in 2007. Reno issued tax incentive bonds to get the money. In the city council meeting Dec. 8 during the budget audit report the finance manager stated that the fund to pay the interest on the bonds is short $12 million,” the reader wrote to us.
Then in even more detail, “the result of Reno issuing the STAR bonds is that Cabela's did not bring out of town customers to the extent that they promised. Instead they took business from competitors. Since 75% of the sales tax revenue from Cabela's went to servicing the bonds that were used to finance the Cabela's building the City of Reno experienced a net decline of sales tax revenue. A large corporation like Cabela's should finance their own buildings. If it's such a good idea let them pay for it. At a City Council meeting Matt Taylor from Finance explained that Cabella’s debt … appears unusual due to a negative $17 million balance in the fund. This is because the city only pays the portion of the debt that has been covered by sales taxes from Cabela’s. If there is a shortfall, it is recorded as accounts payable. The fund is currently upside down, and the bonds will be completed in 2028. At that time, any remaining debt will be written off, which will appear as revenue to balance the books. The financing was based on optimistic projections of retail growth, but the 2008 financial crisis led to lower-than-expected revenues. As a result, the city struggled to meet its debt obligations on the bonds. Reno had to use general funds to cover shortfalls, raising concerns about the risks of public financing for private developments.”
Worrisome as well is that Las Vegas-based CAI Investments, mired in its interminable attempts to revamp the former Harrah’s and to develop the Reno Kimpton project, bought the Cabela’s property in 2021, putting it at the forefront of a trifecta of massive Reno headaches.
Another example of a misguided project, the often empty bowling stadium, was funded by a room tax bond and built in 1995 at a cost of $47 million. Yet another example is the repeatedly failing entertainment district surrounding the Greater Nevada Field, which has its own convoluted and tense-filled history of financing, initially partially funded by a rental car tax surcharge.
TIF financing or Tax Increment Financing, a tool that uses future real estate tax gains to pay for infrastructure improvements, and which has been used in Jacobs Entertainment machinations, is also problematic, yet it remains very much in play at the City of Reno.
The GSR recently indicated it wants approximately $97 million in tax-increment financing from the City of Reno, to help pay for its much touted $1 billion development project.
The TIF financing method allows the city to give the developer financing to help cover development expenses using bonds that are paid back using anticipated future tax revenues generated by the project.
Meanwhile, the Reno Redevelopment Agency many of us hoped was in the back view mirror is now suddenly back after a 15-year hiatus, with its own bonds to fund redevelopment projects and proposals for districts galore. It gets worse as it now wants to suck money from the downward trending City of Reno budget for its own rebranding.
Reviving the work of this agency will undoubtedly create new debt further eating into tax revenues needed for public services. In 2007, just before the Great Recession, it had issued three bonds totaling $20.7 million to help fund downtown projects, which eventually put it into dire financial straits.
All these mechanisms and districts are laced with promises of improving quality of life, but the main thing these seem to improve is the pockets of big companies, developers, their lawyers, lobbyists, their branding acolytes and the politicians they donate to, while leaving the rest of us with fewer services, struggling schools, higher costs of housing and districts where the gaps between the haves and have nots keep widening.
Take a walk on 4th street trying to rebrand itself as the Brewery District and you will see exactly what we are talking about.
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