Silicon Forest Baseball Wager Penalizes Oregon City: Muni Credit
Hillsboro, Oregon’s fifth-biggest city, is staking its credit rating on a plan to build a $15.2 million stadium for a minor-league baseball team. Similar efforts in Washington state and New Jersey ended in downgrades.
The Portland suburb with about 93,500 residents broke ground on the venue last week. It will house an affiliate of Major League Baseball’s Arizona Diamondbacks that for 23 years played 200 miles (322 kilometers) away in Yakima, Washington. Hillsboro plans to finance the stadium by selling municipal bonds by year-end, even as the extra yield investors demand on some of its debt has climbed by 60 percent since July.
In the past 18 months, Wenatchee, Washington, and Harrison, New Jersey, lost their investment grades because sports-arena projects financed with munis missed revenue projections and failed to spur the development officials were counting on. Hillsboro is taking a similar risk, said Howard Cure, director of muni research at Evercore Wealth Management LLC, which oversees $3.7 billion.
“It’s yet to be proven how much a sports team contributes to economic stimulus,” said Cure, who’s based in New York. “If you’re looking at it as a way of economic development and you’re supporting it with taxpayer money, there should be an economic rationale to it. And I’m not sure there is.”
Sports facilities have become more attractive to local governments looking to boost revenue after the 18-month recession that ended in June 2009. Wilmington, North Carolina’s City Council this month approved a $37 million general- obligation bond sale to build a baseball park for an Atlanta Braves affiliate. Moody’s Investors Service rates Hillsboro’s debt Aa3, fourth-highest, and Wilmington’s Aa1, second-best.
Hillsboro’s economy has benefited from its location in Oregon’s so-called Silicon Forest of technology companies. Intel Corp. (INTC) and Lattice Semiconductor Corp. (LSCC) are among those operating in the region.
The Hillsboro stadium is part of “a vision for the city to bring community-based programming and places where the community can get together,” said Suzanne Linneen, the city’s finance director. “There’s a belief that it will bring some economic vitality to the region.”
The Yakima team’s move is partly a result of the disparate financial conditions of the two Pacific Northwest localities. Hillsboro has a median household income of $60,695, about $10,000 above the Oregon average, U.S. Census data show. By contrast, Yakima has about 92,500 residents and an average household income of $39,706.
“Financially, we struggled, and the facility there is now 20 years old and there haven’t been many improvements done,” said K.L. Wombacher, the team’s general manager. “It’s just a small market in the world of minor-league baseball.”
The Yakima Bears finished with a 36-40 record in 2012. It is a so-called short-season franchise because it plays about half the amount of other Class A leagues. The franchise has an ursine mascot named Boomer.
Hillsboro will add the proposed 4,500-seat ballpark to an existing 90-acre complex, which has a 7,000-seat multipurpose stadium and seven softball fields, according to its website.
Attendance in Hillsboro may total from 100,000 to 180,000 fans per season, Linneen said. In Yakima, an average of 1,700 people came to the team’s 38 home games, according to Wombacher. That’s about 65,000 for the entire 2012 regular-season campaign.
Hillsboro estimates it will pay $1.1 million a year for debt service if it borrows $15.2 million for the stadium. It is considering using cash reserves to finance construction and reduce debt issuance, said City Manager Michael Brown. The city has a $366 million budget for 2012-2013, its website says.
The stadium is the latest project the city has funded through debt backed by its full faith and credit pledge. It sold about $29 million of such debt in July to fund renovations to two libraries and refund debt. Moody’s views the securities as limited-tax general-obligations of the city.
For cites that stake their credit on a stadium, “it’s no different from putting a G.O. on a renovation to the public library,” said Gregory Carey, chairman of the public sector and infrastructure group at Goldman Sachs Group Inc. “It’s a community asset. It’s quality of life.”
Yields on some Hillsboro debt rose in the past two months even as interest rates on top-rated munis fell.
Bonds from the library sale maturing in 2028 traded Sept. 19 at an average yield of 3.06 percent, up from 2.9 percent when they were issued July 12, data compiled by Bloomberg show. In the same period, the interest rate on benchmark AAAs fell about 0.12 percentage point.
As a result, the extra yield investors demand over top- grade munis grew 0.27 percentage point in the period.
In the broader tax-exempt market, yields on benchmark 30- year munis rose about 0.01 percentage point to 2.9 percent yesterday, data compiled by Bloomberg show.
The 3,000-seat Yakima County Stadium was built in 1993, according to its website. The team and the county couldn’t agree on improving the ballpark or building a new one, said Randy Beehler, the city’s community relations manager.
The franchise has delayed the announcement of the new team because of trademark work with Minor League Baseball, Wombacher said. Revenue from the ballpark’s naming rights and attendance in the first season will determine how much the stadium will cost Hillsboro, Brown said.
“There are unknowns in this, but what’s not unknown is how we pay for it,” Brown said. “If need be, if other revenues don’t come through, because we have to pay our debt, we’ll use general fund monies.”
Following are pending sales:
NEW YORK CITY plans to borrow a combined $1.2 billion of general-obligation bonds this month and next to refund debt and finance capital projects, according to the city’s Office of Management and Budget. The sales include both fixed-rate and variable-rate debt. (Updated Sept. 25)
PORT AUTHORITY OF NEW YORK & NEW JERSEY, which finances reconstruction of the World Trade Center site, plans to sell $2 billion of taxable revenue bonds as soon as this week, with maturities as long as 50 years, according to a preliminary notice of the sale. (Updated Sept. 25)
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