Construction is now underway on the new city hall in Las Vegas and city leaders are excited. At a time of economic challenge, our city is taking the lead by investing in its community, putting people to work, and helping create a more vibrant, economically robust downtown area, which will support the development of new hotels, casinos and other visitor'serving facilities. As a catalyst for this urban redevelopment, the new city hall will not only create jobs and construction activity, but it will help stimulate private investment in the downtown and the city that has the potential to generate millions of dollars in new tax revenue. Plus, it's a unique opportunity to establish a new sense of place and vitality in one of Las Vegas' most treasured historic areas—downtown. A key component to financing a portion of the $150 million construction cost is Build America Bonds—part of the federal stimulus package created for cities as an alternative to municipal bonds.

stimulus package created for cities as an alternative to municipal bonds.

By building the city hall now, the city is able to create jobs at a critical time and take advantage of cost reductions resulting from the current economy and thereby avoid increases in future construction costs. Our development partner, Forest City/LiveWork, will construct the approximately 300,000'square-foot city hall building on a fee basis. Site preparation work has begun and vertical construction began this summer and is estimated to take approximately 24 months to complete. LiveWork is a development company that teamed up with Forest City—a national real estate firm headquartered in Cleveland (OH) with a long history of successful public/private partnerships, especially in the urban arena.

As approved by the city council, the new city hall is being financed through Certificates of Participation issued under the Federal Build America Bonds (BAB) program. BABs, which were created as part of federal economic stimulus legislation, are designed to increase spending by state and local governments on large capital projects that can quickly generate construction work and jobs. They essentially allowed our city to finance the project at a lower effective tax rate.

“Once President Obama passed the stimulus package, we focused on using Build America Bonds, but throughout the pre-development period, we presented several financing structures to the city to find a solution. This was no easy task given that the real estate and municipal financing markets were deteriorating right before our eyes,” said Dimitri Vazelakis, Chief Operating Officer of Forest City West. “We worked through many different funding ideas until we finally found a method that worked.”

The State of Nevada and the Debt Management Commission approved the city's request to issue up to $267 million of debt for the new city hall project. However, direct project costs are now estimated at $146 million, with total costs including financing costs, interest reserves, closing and underwriting costs, etc. amounting to $185 million. Under the BAB program, a local municipality issues taxable bonds, which are generally paying 1.5 to 2 percentage points more than comparable U.S. Treasury debt. The federal government then rebates 35 percent of the interest costs on the bonds back to the municipality, allowing state and local governments to sell the bonds at net rates that are competitive with corporate securities. The city hall bonds were sold through an underwriting team to institutional investors at an average net interest rate of 5.26 percent. While the investor receives a higher, taxable interest rate on its investment, the bonds are still issued by the same public agencies that are considered to be excellent credit risks, like Las Vegas.

To qualify for the bonds, the financing plan had to receive high credit ratings from each of the three major rating agencies: Fitch, Moody's and Standard & Poor's. The high ratings received by each of the rating agencies (AA- or equivalent from each agency) reflect the city's strong financial reserves and low debt levels, the result of prudent operating policies and practices,. Given the state of the economy, we are understandably pleased with our ratings. They were critical to securing an affordable interest rate on the financing transaction. The federal subsidy on the bonds is expected to save as much as $82 million over 30 years.

We believe we are in a good financial position to more than cover the future bond payments. There is no payment due in the first three years, and the first full payment ($13.4 million) isn't due until FY2017, at which time we expect the economy to have rebounded. The full payment is less than three percent of total General Fund revenues. The city typically has spent five to six percent of its General Fund on capital projects, and so the lease payment should easily fit within our future capital project funding plans. Even with this project, the city's total debt burden is the second lowest in Nevada, and the city maintains an AA credit rating. It's a gamble we are definitely willing to take—especially given the payoffs of redevelopment, job creation and new tax revenue.

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