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.
Read the story linked above for more background. What do you think of the idea? Should the City of Davenport buy the Rhythm City casino and operate it with the idea of capturing all the profits and helping the city’s budget needs?