Cleveland Welcomes LeBron Back With Promise of New Scoreboardby
Excise taxes will be used to fund $60 million of muni bonds
Cuyahoga County selling debt for Quicken Loans Areana upgrade
If your vices are smoking, drinking and Cleveland Cavaliers, you’re in luck — taxes from your first two habits are going to fund a new scoreboard for the third.
Proceeds from an existing excise tax on alcohol and cigarettes will be used to fund $60 million of tax-exempt bonds issued by Cuyahoga County, Ohio, on behalf of the non-profit that operates the Cavaliers’ arena, data compiled by Bloomberg show. A portion of those proceeds will go toward installing new main scoreboards at the Cavalier’s home court, the Quicken Loans Arena.
Investors received a top yield of 2.47 percent on a 5 percent coupon maturing in 2027 in last week’s deal, according to the data.
The new scoreboards follow Ohio-native LeBron James’s return to rejoin the Cavaliers.
Timothy Offtermatt, chair of the Gateway Economic Development Corporation, the board that manages the arena, said James’s presence in Cleveland positions the arena for a successful year. Since James rejoined the Cavaliers after a four-season stint in Miami, ticket sales at all of Cleveland’s professional sports franchises have boomed, Offtermatt said.
"The Cavs had some young talent before, but clearly the economic performance of a team and the arena is at a whole ’nother level when you’re contending for a championship," said Offtermatt. "LeBron takes you a long way toward that place."
Thirsty Fans May Have Boosted Excise Tax Revenue
In addition to funding the new basketball scoreboards, the proceeds of the bonds will also go to finance scoreboards at the Cleveland Indians’s ballpark, Progressive Field, Offtermatt said.
All of the professional sports teams in Cleveland -- the Cavaliers, the Indians, the Browns and the Lake Erie Monsters, a hockey team, play in facilities managed by the Gateway Economic Development Corp., a nonprofit corporation created in 1990.
The rest of the funds will go toward less visible capital repair projects, like new flooring, air handling systems, glass replacement, and security systems at Quicken Loans Arena and Progressive Field, Offtermatt said.
"Once you get past these fancy new scoreboards, the level of sexiness drops off pretty quickly," he said.
The county excise tax on alcohol and cigarettes that will fund the bonds was originally levied in 1990 to finance the construction of Progressive Field and the Quicken Loans Arena, and has been in place ever since, Offtermatt said. Five years after it was put in place, the same taxes went to fund the construction of the Browns’ stadium, which was renamed the FirstEnergy Stadium in 2013, according to bond documents. Last week’s bond deal is the third project that has used the excise tax revenue for funding.
A drop in cigarette demand over the last decade has "taken a toll on the revenue," Offtermatt noted, but with demand for liquor, beer and wine holding steady, it’s still a stable source of funding, he said. Excise tax revenue fell from an annual high of nearly $20 million in 1992 to $14.4 million in 2011, according to bond documents. Cigarette tax revenue accounted for a third of the excise tax revenue in 2002, but has since fallen to about 18 percent, Offtermatt said.
"I think the levels we’ve had for the past few years are what we’ll be looking at for a while to come," Offtermatt said.
The deal received a split rating, as Moody’s rated the issuance A1 while Standard & Poor’s gave it an AA-.