How can you turn $91 million into almost $1.2 billion? Buy some bonds from Miami-Dade County.
This week, the Economic Time Machine helped cover the debate over the Miami Dolphins requesting Miami-Dade hotel taxes for part of a $400 million stadium renovation. County commissioners endorsed the plan with a non-binding resolution. But they emphasized they wouldn’t approve anything close to the 2009 deal given to the Marlins, which had the county footing most of the construction bill for the new $639 million ballpark and parking complex.
Miami-Dade borrowed about $400 million in that deal by selling bonds on Wall Street. During the commission discussion on the Dolphins plan, Mayor Carlos Gimenez mentioned one set of stadium bonds worth about $90 million would cost more than $1 billion to pay back. We at the ETM thought: Can that be true? The answer: yes. See below.
The chart (if you can’t see it, try refreshing or opening this article in a different browser) lays out the debt-repayment schedule on that initial $91 million.
The first column is the money borrowed, and the small lines show the amount of principal and interest owed each month. The soaring line is a running total of how much money Miami-Dade is scheduled to pay back for the loan. It crosses the $500 million mark in 2042, and hits $1.18 billion by the time the last payment is due 2048.
Miami-Dade will use hotel-tax revenue to pay off the bonds. But payments don’t kick in until 2026. Once they do, they get very costly very quickly. The first payment, for example, totals $260,000. The fifth jumps to almost $8 million and the 10th tops $20 million. Payment No. 18 brings the big hit: $118 million comes due in 2042 alone.
The high interest comes from the penalty Miami-Dade must pay in exchange for a repayment plan that lets the county delay by 15 years making it first debt-service payment to the Wall Street lenders who bought the bonds.
“It’s an expensive way to borrow money,’’ said Frank Hinton, head of the county’s bond program. “You’ve got $1.2 billion to pay back. It is a lot of money.”
Because Miami-Dade couldn’t afford a straight-line paydown of the loan — like a home mortgage — the finance team had to be more creative in borrowing the money on Wall Street. Unlike most bonds, these can’t be repaid back early either.
Should Miami-Dade agree to help the Dolphins with the stadium project, Mayor Gimenez said he would not allow the same kind of aggressive financing. As a commissioner, Gimenez voted against the Marlins deal and won the mayor’s office in part thanks to anti-Marlins sentiment against then-mayor Carlos Alvarez.
Hinton noted the bonds in question were sold in 2009, a time when the global credit markets were all but frozen. And with construction on the stadium all but underway, Miami-Dade had to take the best terms it could. “Money needed to be borrowed,’’ he said.
Of course, the dollar totals probably won’t look quite as scary in 40 years as they do today. Inflation works in a borrower’s favor, as hotel revenues rise while the county’s debt payments remain fixed. (For instance, $250 million in 1973 would have the same buying power as $1.2 billion today, according to an inflation calculator on the Bureau of Labor Statistic’s website, bls.gov.)
Hinton also noted there’s a downside to holding back on construction until Miami-Dade has enough money to do a straight-line payback regimen. Construction costs tend to go up, which can eat into savings on the borrowing side. For instance, in 2005 one mile of track for the county’s Metro Rail line was estimated at $77 million for one mile. Now it’s $140 million a mile, he said.
Still, the $91 million bond package illustrates just how expensive it can be when a borrower holds off paying down debt. For every dollar Miami-Dade borrowed in this transaction, it will pay back $13.