Financial experts have raised concerns about Davenport’s plan to use municipal bonds to buy the Rhythm City casino for

$46 million, but Mayor Bill Gluba called the comments ridiculous and uninformed.

Experts speaking to Bloomberg News say borrowing money for something that relies on profits and shrinking the city’s borrowing capacity is a risky endeavor. They point to failed municipal projects such as sports venues and, in particular, an incinerator project in Harrisburg, Pa., that sent that city into bankruptcy.

“The city is putting taxpayers 100 percent on the hook in case this casino doesn’t perform as expected,” Matt Fabian, managing director at Municipal Market Advisors, a Concord, Mass.-based research firm, told Bloomberg News. “It’s hard to believe that taxpayers fully understand the risk they are taking in this transaction.”

Howard Cure, director of municipal bond research at New York-based Evercore Wealth Management LLC, questioned whether it is the right use for city debt, according to the Bloomberg report.

“In an era when budgets from cities and states and the federal government are being scrutinized more as how best they serve their population, this strikes me as going counter to that,” he told Bloomberg.

City officials say they expect the annual repayment for the bonds at $3.5 million, which would be paid for from casino revenue. The Rhythm City’s earnings before interest, taxes, depreciation and amortization in fiscal year 2012 was $10.48 million.

Standard & Poor’s says Davenport’s debt service, about 21 percent of operating expenditures in fiscal year 2011, is “elevated,” Bloomberg reports.

Gluba was emphatic in his response.

“The people quoted know absolutely nothing about Davenport and our staff and how we run the city,” Gluba said. “To compare this to an incinerator is ridiculous.”

Gluba also was quoted in the article that revenue could be used to provide property tax relief and diversify revenue streams and that the city enjoys a lower borrowing rate than private developers. He tried to allay concerns about taking on a private enterprise.

“The state highly regulates this,” Gluba said Thursday. “It is not like buying a Wal-Mart. This is a highly regulated, unique field.”

Davenport is at about 64 percent of its bonding capacity of $307 million. Buying the Rhythm City and other planned bond sales increases the debt capacity to about 85 percent. The city’s bond counsel has said that debt capacity doesn’t stay that high for very long.

“They haven’t had access to our financial reports,” Gluba said. “Our bond counsel says we’re solid.”

The city’s bond counsel, John Burmeister of Public Financial Management, couldn’t be reached for comment Thursday.

Alderman Mike Matson, 8th Ward, has raised concerns about what the casino purchase would do to the city’s debt capacity and voted against the term sheet that started the formal purchase process.

“I was a little concerned about the debt capacity, and some of the people in the article raise those concerns,” Matson said Thursday. “Mayor Gluba made some points, too.

“It is a concern. Now that the council voted for it, I pray it works. Otherwise, we have a problem.”

(27) comments

shemonster
shemonster

What about the West end of davenport? We are the Forgotten Zone. Boarded up shops streets crumbling sewers backing up into homes. Homeless tents down by the railroad tracks collecting cans going through garbage Hey I have a good idea lets build a walkway over Riverdrive on the east end for tourists and lets buy a casino and really put the taxpayer on the hook. The 2010 census says there are around 100k people in Davenport with property taxes and all the other taxes how far do you think we can be streched

Voice of Truth

Like most people, I am all for investing in the community to improve infrastructure, local business and services to citizens. Spending $50M on a private business that couldn't make it with professional gaming people running it...is just foolish. Why do the current owners WANT to sell? Because they couldn't make money! Why does the City Council of Davenport think they are SMARTER than people who do Gaming for a living? The City Council is embarking on a risky path with a whole bunch of our money.

If the CIty wanted to invest in the community, what else could we have done with $50M? $50M! This could have been used to assist existing small business in Davenport, support new start up business, motivate existing business to hire local staff and new employees, fix streets, etc.

Even with informed disinterested parties making concerned comments...Gluba says..."Trust me" - "I know better". Amazing. Good luck.

KingJoe

What a terrible job the city is doing on messaging. If this was a for profit company someone would be fired for not managing this properly. In the end the public just doesn’t care that much. They will accept Gluba’s answer that the Bloomberg people just don’t understand finances. Really? This kind of story would sink a private company looking for public funding; instead a city government using public funds will get a pass.

willy

I didn"t want to buy an ice skating rink Let the people who want to gamble finance it let the people who ice skate pay for the rink I my self will not ice skate nor do I gamble nor do I ride a bicycle across the bridge down at the harbor why O why do the people who do not use these facilities have to pay for THEM MY TAXES are not going down WHY ???????????????

Terry W

Ya THINK???????????? What a bunch of morons to go for this........we will ALL pay!! Don't trust them ONE BIT!!

youshouldthinkaboutit

Planted story! Why would Bloomberg pick this story up and have the details (however opinionated) if it wasn't provided by someone with a specific (financial) interest in what happens here. Wait to see who submits responses to the RFP, where they want to locate and operate, and I can assure you THAT is where you will find the real source of this story! The city didn't pick the $45 million price tag- the Isle did based on past and future profits. Look at what outside operators propose and you will get a clear message that there is BIG money involved in this deal for private industry, that may leave this community. The City is trying to avoid that with the laws that are in place within the state for gambling. Wait and see how this unfolds before drawing a conclusion of good or bad.

thelastoftherationals

I love it. Financial experts are wrong. Gluba is right. Just trust him. Just trust him. Let's vote all these clowns out!

Murph8917

Financial experts also said Mortgage Backed Securities were a risk free investment. Who are calling these guys "experts"? It is a risk to not develop new areas of the city and lose out on tax revenue. That old riverboat is an eyesore and needs to go.

thelastoftherationals

I'll go to Gluba next time for financial advice.

R A Cole
R A Cole

The financial experts have evaluated the city of Davenport’s purchase of the casino and stated that it is a bad idea and not appropriate for a city government. Governments are lousy at running any business and do not belong in the casino business. Mayor Gluba seems to have the same arrogant attitude that his hero, Obama, displays. They share the false belief that they are smarter than everyone else and they both choose to ignore common sense advise from experts. I am going to check out homes for sale in Bettendorf.

Zieke

As if Dav. isn't enough of a train wreck ,now Gluba wants to buy something nobody else really wants. This guy has made and continues to make a shambles of Davenport. You voters had better stand up and be counted!!!

daniel nicholson

would you get anything less from Gluba spend spend spend that why are taxes are so high

Murph8917

I think this will be a great opportunity to Develop downtown Davenport. With the new train coming to the QC, this is great timing to enhance Davenport as a tourist destination and to increase tax revenue. The Hotel Blackhawk worked out for the city and I believe the new casino will as well.

1of3

I agree with you Murphy, while any investment is a risk, I think this could work to make millions for the city if they do this correctly. The only thing is, Im not so sure it should be downtown instead of off of one of the interstates.

4America

If anyone is ridiculous and misinformed, I would say it is our champaign taste on a beer budget mayor and city manager and council members. I believe the ten who voted for this should start putting their money in a bank account so when something in their plans go south, THEY end up paying for it NOT the citizens of Davenport. Gluba never impressed me in the first place and neither did or has Malin. All they know, like Obama, is spend spend spend!


Concerned Parent 60

My property taxes have gone doubled since I moved into my house eight years ago. The city needs to look at ways to reduce the number of employees and subcontract out many of the services that are currently being done with government workers. I mean really look at all the costs including retirement costs. Government bookkeeping principles suck. If we get into this Casino, we need to take ALL of the profits that are earned initially and apply them to the bonds. We should not touch that revenue stream until the bonds are retired, period.....

RIC

How much will the NEW casino cost the city (in addition to the 46 mil)?

dendroid
dendroid

another example of government benefiting itself INSTEAD of the people they represent and are supposed to be working for.............

Wasteline

Can we assume with the City of Davenport taking over ownership of the casino, that it would become a non-smoking facility.
If so, what impact would a smoking ban have?

Wasteline

Request for Proposals for Land Based Casino

http://www.cityofdavenportiowa.com/egov/docs/1351889682_70892.pdf

Wasteline

Casino Gamble Lures City on Mississippi to Borrow: Muni Credit

"Davenport plans to sell bonds in the first quarter to finance the purchase, Gluba said. The city also issued a request for proposals, due Dec. 20, for developers to build a land-based casino of at least 1,000 slot machines and 20 table games. The request doesn’t say how much the city would contribute to construction.
The riverboat would close once the new facility is done, which could take two years, Gluba said. "


http://www.bloomberg.com/news/2012-11-28/casino-gamble-lures-city-on-mississippi-to-borrow-muni-credit.html

full_disclosure

I would hope taxpayers ask just how the city/Isle arrived at the $46 million purchase price. Seems high for a worn out asset (boat) with declining revenues. You also can expect the Isle will use a share of that taxpayer money to invest in the competition just a few miles away.

georgeandersonxyz

The City of Davenport can't manage to plow snow- What makes them think that they can manage a casino?

Joebob1

Is anyone aware of a city owned casino that survived? I think if this were a good idea all the financial guys would be lining up behind it instead of saying "Hmm i'm not sure that's a good idea..." after all, if we make money, they make money. Even if we don't make money they still make money.

Crusader

Dubuque and Polk County are both government-owned gaming operations that have been very successful.

writingmomma

I refuse to gamble in Davenport casinos at all. I can remember a time when people would be yelling and having fun from the wins that took place there. Wow, times have truly changed. They are so tight anymore, you would hardly ever hear anyone make a peep. Start paying out more and people would start coming in more. Jumer's is taking all of the revenues in. Wake up Davenport. Who wants to get involved in a losing deal? Not me!!!

TruthOnlyBeTold
TruthOnlyBeTold

Sounds like Davenport city leaders is giving it's taxpayers a pig in a poke...

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