Sports-Happy Laredo Keeps It Up
Tuesday, September 13, 2011
DALLAS— Laredo, Texas, an unlikely home for professional ice hockey, is expanding its role in minor-league sports with a baseball stadium financed with $11.3 million of sales-tax revenue bonds.
The South Texas border city is enjoying an economic boom thanks to the improving economy across the Rio Grande in Mexico and its growing role as a crossroads for international trade.
The city’s current population estimate is 244,580, up by 38.5% from the 2000 U.S. Census.
In January 2001, with voter approval, the city levied a quarter-cent sales tax to build the Laredo Entertainment Arena — since renamed Laredo Energy Center — with bond financing. The bonds were issued in 2001.
The $36.5 million arena is managed by SMG Management and since 2002 has been home to the Laredo Bucks of the Central Hockey League.
In a majority Hispanic city that is one of the hottest in Texas, fans have embraced the Bucks, with attendance at games averaging more than 6,200 or 78% capacity in the regular season and nearly 6,500 in the playoffs.
The arena has also hosted major touring events and concerts with performers like Elton John, Shakira and ZZ Top, sparing fans from a two-hour drive to San Antonio.
With a median age of 27, Laredo’s population is six years below the Texas average and a full decade younger than the national median.
In 2008, the city won 61% voter approval to issue bonds for the construction of a minor league baseball stadium that will be secured by the same sales tax.
The stadium is already under construction near the hockey arena and is expected to be completed next March. The Spanish-style Laredo Ballpark will be home to the Laredo Lemurs, an expansion franchise in the American Association, an independent minor league .
The 4,000-seat stadium will also be used for youth soccer leagues, youth and prep baseball games, along with other youth sports.
Stephens Inc. priced the taxable baseball stadium bonds in August.
The debt garnered underlying ratings of A-plus from Standard & Poor’s, A1 from Moody’s Investors Service and AA-minus from Fitch Ratings. For a premium of $93,500, the bonds also carried insurance from Assured Guaranty Municipal Corp.
While the arena bonds were tax-exempt, the stadium bonds were taxable because of the management contract, according to Noe Hinojosa Jr., president and chief executive of financial advisor Estrada Hinojosa & Co.
“We received 5.39% total interest cost,” Hinojosa said. “We had been planning with an assumption of 5.57%, so we were able to beat our own estimate by 18 basis points.”
Hinojosa, who has worked for years as Laredo’s financial advisor on bond offerings, said the keys to the arena and stadium deals were affordability for the city and strong revenue coverage of at least 1.5-times debt service for the investors.
“The city has done really well in the sales-tax collections,” he said. “They have had a surplus since the inception of the fund.”
But were entertainment venues an appropriate investment for a border city where incomes are traditionally lower that the rest of the state’s?
“Unemployment in Laredo has actually been lower than the rest of the state, and finding a job is not so hard,” Hinojosa said. “So what the city is doing is building quality-of-life projects.”
Quality of life in Laredo includes relatively low crime rates that stand in dramatic contrast to its sister city across the Rio Grande in Mexico, Nuevo Laredo.
Drug violence in Nuevo Laredo has become so severe that many businesses are pulling up roots in Mexico and reopening on the Texas side, according to Cecilia Garza, business professor at Texas A&M International University in Laredo.
“It is estimated that as many as 700 businesses closed in Nuevo Laredo in 2006 representing no less than 3,000 jobs,” Garza wrote in a report. “Other businesses are staying open only during weekends. The closures are attributed to the violence and lawless image of this border city, but more specifically to blame are the surge of burglaries of business establishments.”
Post-9/11 security measures have severely hampered border crossings from Nuevo Laredo, whose 2010 population was estimated at 373,725. Individuals can no longer cross simply by declaring that they are American citizens and must carry passports.
For transportation of products, the security measures have further tightened the chokepoint between the two countries. Local officials have urged increased hiring of federal customs and immigration agents to handle the backup.
Nationwide, the federal government has doubled the number of Border Patrol agents since 2004 to more than 20,000 by 2010.
In the Laredo Border Patrol sector, the number has increased by more than 800 to 1,858. In the Rio Grande Valley sector, it’s increased by about 1,000 to 2,441, officials said.
With an entry-level position in the Border Patrol paying about $38,000, local officials are eager to have the jobs. Adding a single federal employee creates a multiplier effect equal to 3.1 to 3.7 jobs, according to the Dallas Federal Reserve Bank.
As the American gateway to Interstate 35 corridor, Laredo is the busiest point of entry for truck and rail traffic along the nearly 2,000-mile border with Mexico. The North American Free Trade Agreement between the United States, Mexico, and Canada has led to the development of major inland ports along the route in Texas cities to the north.
Estrada Hinojosa has worked with Laredo to relieve the congestion of traffic and commerce in a series of complex financings.
The city has offered seven negotiated bond sales for the border bridge between 1996 and 2005 for a total par amount of nearly $100 million, according to the firm.
Proceeds from the bonds were used to build the U.S. portion of the new Laredo Northwest International Bridge — also known as Bridge No. 4 — to install enhanced toll collection systems and pedestrian walkways on several of the bridges and to refund bonds for debt service savings.
“The project would require a combination of foreign, federal, state, local and private funding,” according to Estrada Hinojosa’s description of the offering. “Challenges included working out how financing and construction costs for Bridge No. 4 could be shared by public and private interests from the U.S. and Mexico.”
Moody’s Economy reported in March 2011 that the Laredo will continue its momentum in 2011 as cross-border trade revives, though competition from other border areas is emerging.
In fiscal 2011, the full valuation of the city was $10.67 billion. From 2006 to 2011 Laredo’s taxable value has grown about 4.8% annually, which includes flat growth in fiscal 2011