Field of Schemes
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January 28, 2011

Downtown L.A. NFL stadium: How would the bonds work?

Bill Boyarsky of L.A. Observed has an interesting take on how an AEG stadium in downtown Los Angeles could be financed:

Several years ago, the city's Convention Center and Exhibition Authority borrowed $450 million through the sale of tax-exempt revenue bonds to build an addition to the convention center, West Hall. It's the green building you pass on the Harbor Freeway. The city leased the convention center from the authority and is paying off the bonds with city funds. In the current budget, $48.8 million is set aside for the yearly payment of this debt, which is now down to $445 million. It will take 30 more years to repay it, city officials said.
Under the NFL stadium proposals that have been aired in the press, the $350 million bond issue for the football facility would probably be added to the convention center authority's existing $445 million debt, bringing total indebtedness to $795 million. This would boost debt repayment, or service, payments by $25 million or possibly $30 million a year, officials said. In other words, more than $70 million a year would come from the city treasury to repay the combined debt of the convention center and the football stadium.

Now, AEG has previously promised it would pay off the $350 million in new convention center bonds. However, it's questionable whether this would be legal: If a private entity pays for public bonds, that converts them into private activity bonds, which aren't tax-exempt. (And before anyone asks, the Yankees loophole is closed now.)

The only way around this would be to argue that no more than 10% of the bond proceeds were for the benefit of a private party; I guess if you squint you can pretend that tearing down a convention center hall and then rebuilding it is for the benefit of the public convention center, not the football stadium that the hall would be moved for. That'd be up to the IRS, though, and as we've seen before, they're sometimes willing to bend the law for the right people.

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