Saturday, February 12, 2011

Houston: $26.5 million in toll road collections used to pay off Harris County Sports & Convention Corporation

Sports agency seeks help on loan at Reliant

County’s landlord for stadium is asking for more time, lower installments


Houston Chronicle
Copyright 2011

In another sign of financial distress at the Harris County-Houston Sports Authority, the agency has asked for more time and lower installments to pay back a county loan used for the Texans' practice facility and additional parking around Reliant Stadium.

The debt goes back 10 years, to when the Harris County Sports & Convention Corp. — the county's landlord for Reliant Park — borrowed $19.1 million from Texans owner Robert McNair to buy the land for the practice field and parking spaces.

The Sports Authority, created by the city and county to manage $1 billion in public debt on Minute Maid Park, Reliant Stadium and the Toyota Center, agreed to back up the corporation with loan payments — if it had money left over from stadium and ballpark debt payments.

When the McNair loan came due five years later, neither the corporation nor the authority had the money.

The authority asked the Harris County Commissioners Court for help. The court came through with $26.5 million in toll road collections, which the authority used to pay McNair.

The authority's first payment to the county is due this month. On Jan. 25, however, Sports Authority executive director Janis Schmees wrote to Commissioners Court asking for some slack.

The authority collects $5.2 million in rent from the Rockets annually. It used that money to make payments on the Toyota Center parking garage until it was paid off last August. The authority now plans to channel that money toward the Toll Road Authority loan. Schmees had asked the court for permission to hold back $500,000 a year to cover operating expenses for the next five years, with a promise to repay all of the money with interest by 2020.

The payment relief was on Tuesday's Commissioners Court agenda, but was withdrawn after questions from County Judge Ed Emmett.

"We will repropose it" before the next payment is due in August, Schmees said. The Sports Authority will make its full payment this month.

"They are, for all intents and purposes, facing bankruptcy in a few years if they don't adjust their cash flow, and it wasn't even their fault," Emmett said. "They will come back at some point and start talking about how do they get themselves out of the financial jam."

The Sports Authority's cash squeeze results from the 2008 downgrade of its insurer for more than $100 million in stadium bonds.

Under the financing developed for the stadium, the bonds were purchased and converted to a bank loan due in five years, resulting in massive increases in debt payments. Meanwhile, hotel room and car rental taxes declined because of the national recession.

Bettencourt not a fan

"The $26 million should have never been loaned from the Toll Road Authority to the Sports Authority. All that is doing is putting the taxpayers on the hook," said former tax assessor and Sports Authority critic Paul Bettencourt. If the authority defaults, he said, the county may not be able to recover the toll road money.

"When you loan people money who don't have money, you'll end up holding the bag at the end of the day," Bettencourt said.

Although the state Transportation Code limits the expenditure of money taken in by the Harris County Toll Road Authority to transportation-related uses, there are no such restrictions on lending toll money, said Douglas Ray, an assistant county attorney. From a legal perspective, the loan is an investment, he said.

The Toll Road Authority will get a 7 percent annual return on its investment per the terms of the loan. At present, the Toll Road Authority is to receive payments from the Sports Authority totaling $47 million in principal and interest. The amended schedule proposed by the Sports Authority would add a year and $1.5 million in interest.

Funds needed for parking

The Commissioners Court also helped stadium landlords last year when it drew on the county's own hotel room tax money to contribute $4 million toward stadium debt payments that the Harris County Sports and Convention Corp. could not cover last year.

Willie Loston, executive director of the Sports & Convention Corp., said the original McNair loan was necessary to provide parking to accommodate the expanding scope of the Reliant Stadium project.

The original cost of $367 million swelled to about $449 million as the Houston Livestock Show and Rodeo and the Texans requested extra features.

"My recollection is that there was a sense that the Sports Authority would have (cash) flows to either pay it off or certainly that the mechanism of refinance would be there to be able to extend the loan," Loston said.

For its part, the Sports Authority was careful to state in the loan agreement that McNair would be paid on time only if there was money left over after baseball and football stadium payments and after money for the then yet-to-be-built Toyota Center was protected.

The Sports Authority may need extra time to pay back the county for money it borrowed for extras at Reliant Park 10 years ago. How it got behind:

• May 2001: The Harris County Sports & Convention Corp., a county-created landlord for Reliant Park, borrows $19.1 million from Texans owner Robert McNair. It uses the money to buy land for a Texans practice field and more parking. The Harris County-Houston Sports Authority, created by the city and county to manage $1 billion in local sports venue debt, agrees to back up the corporation.

• September 2006: The McNair loan comes due. Neither the corporation nor the authority has the money. Commissioners Court uses $26.5 million in toll road collections to pay off McNair, and gives the Sports Authority five years before it has to start making payments.

• June 2008: The insurer of more than $100 million in authority bonds is downgraded, triggering a conversion of the bond into a bank loan that collapses the payback period to just five years, hugely inflating the Authority's debt payments.

• February 2011: Now in a serious cash crunch, the Authority's first payment to the county is due. The Authority sends a letter to Commissioners Court asking for lower payments and an extended term of the loan. The request is put on the court's agenda, then withdrawn. The authority will make this month's payment, but its executive director said she'll ask again for some slack before the next payment comes due.

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