February 1, 2009 --Tourists would need to spend record amounts of money at Miami-Dade County hotels to pay the debt on a proposed baseball stadium in Little Havana, according to a Miami Herald analysis.

Even before the autumn economic tailspin, the analysis found, hotels were not generating enough revenue to cover payments on $297 million in stadium debt that Miami-Dade wants pegged to hotel taxes.

That leaves Miami-Dade administrators counting on continued growth in the hotel industry even as South Florida suffers its worst tourism decline since the 2001 terrorist attacks.

Hotel taxes -- also known as "bed taxes" -- would fund nearly half of the construction tab for the new $609 million home for the Florida Marlins. As administrators finish their financing plan for the stadium, they are grappling with a complicated question made more complex by the current tourism slide: How much more debt can hotel taxes sustain?

To answer that question, The Miami Herald mapped future debt payment scenarios on the proposed stadium and parking garage.

The analysis combined county budget figures and annual borrowing costs of about $20 million for a generic $297 million bond. It found that without a quick turnaround in tourism, it would be 2017 before Miami-Dade's hotel taxes could sustain the stadium's debt.

Jennifer Glazer-Moon, director of the county's Strategic Business Management office, confirmed that initially, there probably would not be enough bed taxes to cover debt on the 37,000-seat stadium.

As in the past, Miami-Dade would structure the bonds to allow smaller payments upfront and then larger payouts in future years when hotel taxes are likely to be higher.

"Our economy is a resilient economy," said County Commission Chairman Dennis Moss, a stadium supporter. "You'll see the bed tax start to grow."

Should hotel taxes stay flat through 2010, Miami-Dade would need an extra $38 million to cover bond payments by the end of 2016, the analysis shows. Under the county's more bullish budget forecasts, the cumulative deficit would be only $6 million.

OUTLOOK FOR TOURISM

Some industry experts predict a far grimmer tourism landscape in the short term than what the county foresees.

Citing an 8 percent increase in hotel rooms and popular one-time events like January's college football championship, Miami-Dade's budget office predicts that hotel taxes will set another record this year, growing by 2.4 percent to $75.1 million.

But PKF Hospitality Research in Atlanta forecast a 6.9 percent decline in hotel revenue for this year, Miami-Dade's worst showing in seven years. With hotels cutting rates, corporations slashing meeting plans and vacationers wary of spending, the consulting firm said Miami-Dade would have a hard time posting gains.

"I think most hoteliers in Miami, and around the country, would laugh at the thought of an increase in hotel tax collections in 2009," PKF research director Robert Mandelbaum wrote in an e-mail.

Since the county has not completed a financing plan, elements in The Miami Herald's analysis could change before the scheduled Feb. 13 vote on the stadium deal by Miami and Miami-Dade commissioners.

For example, the county has $25 million in surplus hotel-tax revenue that it could use to pay down construction costs, saving about $2 million a year in debt service, Glazer-Moon said.

But Larry Spring, Miami's chief financial officer, said the city expects its yearly bed-tax payment from the county to rise to $6 million, from $2 million, under the stadium agreement being negotiated between the two governments. That would reduce the amount available for Miami-Dade's bond payments.

George Burgess, Miami-Dade's county manager, dismissed the notion of the current economic crisis causing lasting damage to the tourism industry. He pointed to the years that followed the 9/11 terrorist attacks, when hotel taxes dropped by 6 percent in 2002 and then surged to a record by the end of 2004.

"Our belief is the slowdown will last two or three years and then rebound," he said. "Is it reasonable that we'll be flat-lining for six or seven years? It is not."

Between 2000 and 2007, the average growth for hotel taxes hit 6 percent a year despite the terrorist attacks, active hurricane seasons and a battered housing market. Current county forecasts cap hotel-tax revenue growth at 4 percent.

NO CRYSTAL BALL

"We shouldn't be judging a 20- to 30-year financing plan based solely on current market conditions. There will be highs and lows," Miami-Dade Mayor Carlos Alvarez said in a statement Friday. "Our bed tax growth estimates, once complete, will be conservative as they have been in the past."

But those questioning the stadium plan warned against putting too much faith in optimistic projections in the current economic climate.

County Commissioner Katy Sorenson said it is "just stunning" that the county administration would be willing to move forward if hotel taxes are not high enough to cover the debt in the early years. "The public strikes out with this deal," she said. "I think it's all going to unravel in July."

If commissioners in Miami and Miami-Dade approve the plan, either government would have until June 30 to cancel the deal. "If we are presented with a worst-case scenario by June 30, we can walk away," Mayor Alvarez said in his statement.

The Miami Herald analysis assumed that Miami-Dade would sell 35-year bonds at a 6 percent interest rate, the return administrators said they expect Wall Street to accept during the current credit crisis. That amounts to a yearly bond payment of about $20 million, assuming equal installments for 35 years.

That figure was added to core expenses already covered by Miami-Dade's 6 percent tax on hotel-room rent: existing obligations, including debt payments that range from $20 million to $67 million a year; $7.5 million for the Adrienne Arsht Performing Arts Center; and about $11 million in tourism promotion.

The analysis left out a number of current hotel-tax recipients, such as the Vizcaya Museum and Gardens. County commissioners also could opt to reduce funding to the Arsht Center or tourism efforts should hotel taxes fall short.

How hotels perform in the coming months will be crucial to whether the Florida Marlins move to Miami, since cratering tax receipts likely would signal a hotel market too shaky to support the debt.

"In the environment we're in now, we're looking at it on a month-to-month basis," said John Incorvaia, a Moody's debt analyst who focuses on Florida. While worsening declines would signal long-term trouble, "it tells us a little bit different story if they're down for a few months but the rate of decrease isn't down as much. . . . Maybe that's a sign of stabilization to come."

Hotel-tax revenue began to drop in the fall, after a strong summer boosted by foreign visitors. The revenue dipped by 2 percent in September and October, the first consecutive monthly decline since September 2002.

November brought more bad news, with tax revenue down by 9 percent. And despite the December reopening of the Fontainebleau, Miami-Dade's largest resort, revenue dropped by 8 percent that month.

But even if hotel taxes fall short in early years, county officials say they are confident of the tourism destination's long-term prospects.

Reducing early loan payments to make larger ones later would increase Miami-Dade's borrowing costs by millions of dollars.

In 1997, needing money for the future Arsht center and some smaller projects, Miami-Dade borrowed $170 million by promising future hotel taxes to pay off the debt. The repayment schedule has Miami-Dade making only $5.8 million of interest payments on the loan through 2028.

The next year, Miami-Dade would owe $4.5 million in principal and $23 million in interest. In all, the $170 million loan would cost Miami-Dade $651 million through 2038, according to county bond documents.

FINDING A BALANCE

Glazer-Moon said the approach allows the county to consider current needs while taking advantage of the near certainty of future tax growth.

"If you size it in such a way that I'm going to make the payment that I can afford to make this year forever, then you're basically not optimizing the use of that revenue," she said. "Because there's all of this money coming in [during later years] that you're not taking advantage of."

The stadium has been controversial not just for the large price tag, but for the priority given to the ballpark over a pet project for the tourism industry: improving the Miami Beach Convention Center.

A $75 million expansion and renovation of the facility has stalled over cost concerns, and hotel advocates want Miami-Dade to spend money on the convention center first.

"The bottom line is very simple: The economic engine that generates that [hotel] tax has been allowed to decay over a period of 20 years," said Stuart Blumberg, president of the Greater Miami and the Beaches Hotel Association, which also receives hotel taxes. "Which means there will be less bed taxes generated from that engine."

County Commissioner Carlos Gimenez said he supports spending hotel taxes on the convention center instead of the stadium. He opposes the idea of taking on debt that current revenues won't support.

"You're mortgaging the future," he said. "You are also stripping any future commission from the ability to do projects. It's troublesome."

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Copyright (c) 2009, The Miami Herald

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