Tuesday, January 12, 2010

Assessing Risk

Square in the Null Space nexus is news that the Rivers Casino here is finally assessed at all of $199.5 million dollars. On the scale of $ amounts we debate in town here, it should be big news. 

So what you say?  We've pointed out before that high or low, the assessed value of the rivers casino would likely one of the single most valuable taxable properties in the city.  At just under $200 million in assessed value the casino is slated to bring in $2.8 mil for the school district, $2.1 mil for city, and a lesser amount to the county. So you are talking about a new public revenue stream of well over $5 million being turned on theoretically into perpetuity. That would be more $$ than the entire revenue stream for the vast majority of local governments in the region.  What is the full net present value of that new income stream? Once you have calculated that number it might be worth asking if sufficient resources were deployed to get the best and most defensible number.. According to that news story, the county ditched using an outside contractor and instead used its internal resources, in particular it's Chief Assessor, to set the value of the casino. 

Where to begin?

First real question, was the anticipated new revenue plugged into the budget projections for any of the 3 local governments expected to get the 'windfall'.  Windfall loosely used. If yes, then is the low valuation creating a bigger budget hole for any of them this year than was anticipated.  If no, then does this new money solve a lot of other problems that we have been gnashing over.

The bigger question.   Should the city or school district appeal the assessment value?   It might be a windfall in a sense, but is it the right amount?  At a $400 million dollar assessment there is another $2mil that could go to just to the city itself, let alone the potential additional revenue for school district and the county.   What was the magic number to keep the libraries open?  Is there money being left on the table?

Now the great question.  Let's assume the valuation is a fair reflection of the business operation that is the casino.  There being few comparables to assess a casino here in the region, they obviously had to either look at construction cost or the size of the business the property will be used for.  What does it say that the estimated 'value' of the  casino is so far below what it cost to build the thing in the first place?  Even taking into account that it still is a 2002 base year system and there has been 7-8 years of inflation to factor in...

Finally.. this is all out just in time to check in on the casino watch. I don't see the latest numbers out for the first week after New Years so keep an eye out.   But the trends down at the casino are well below all expectations. So much so that you have to wonder the viability of it into the future.  I have to admit I wondered if they were keeping their financial success early on limited in order to ensure they got the lowest possible property assessment.  But that is awfully cynical, even if rational in a strategic sense.

No a bankruptcy does not mean the casino will cease to exist... but a future bankruptcy would have lots of implications all around.  If they were having cash problems down there already, what will it mean now that they now are about to be sent a new multi-million dollar real estate bill.  Their interest reserve to make bond payments must be reaching near zero pretty soon by their own public admission.  What then? 

So many questions.


Anonymous Anonymous said...

Great Post.

To answer one of you questions, The city and school district should appeal. Why not? Is there a downside?

Here is another question: When the casino was originally built, it was sold to the public as a way to reduce property taxes and plug the holes in our budget. Now those funds are pledged to the new hockey arena. How exactly does that happen?

Tuesday, January 12, 2010 8:17:00 PM  
Blogger C. Briem said...

Even with low revenues at the casino here, the money going toward the arena bonds is a small fraction of the total taxes it is generating for the state. So you really can't blame the lack of general property tax relief (there has been some senior relief hasn't there?) on the arena really. The question is valid as to where the big chuck of new tax revenues is going and the answer is the big black hole that is Harrisburg. Though you have to keep in mind the big moneymakers in Philly have not even opened yet.

But whatever happened to property tax relief is all our fault. Same for any of a number of issues. People don't care much about what goes on in Harrisburg which is an awful lot of important stuff. People don't pay attention to the races for state house or state senate and then pay little attention to what goes on there between elections.

Consider all through the fall Pennsylvania was the last state in the nation to pass a budget. Nobody cared. It was at most a minor news item now and then. Was anyone really upset?

So you reap what you sow. Consider the public outrage that erupted because they voted themselves a pay raise. If people were a tenth as interested in policy on the casinos, and the revenue they are bringing in, I bet a lot of things would be different.

Tuesday, January 12, 2010 10:39:00 PM  
Blogger n'at said...

If I were the city or the school district, I'd appeal. I would assert applying the mean construction labor and material cost indices over the term of construction for the casino, and not the 2002 estimate. Estimators from '00 to early '04 had no information as to the spike in raw materials and delivery of goods.

Look at the allegheny chunnel for a gross example: federal funds were encumbered based on estimates well before any bubble bursting or commodity spiking.

Then again, will the casino be re-assessed with every other property in allegheny county by 2012? When and if that newer value is determined will it be lower or higher than the 2002 value?

Wednesday, January 13, 2010 8:01:00 AM  

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