The taxpayers in Taunton, Massachusetts are trying to understand why their Mayor Tom Hoye allowed a provision in the recently negotiated intergovernmental agreement (IGA) with the Mashpee Wampanoag which allows the Tribe to use theCity’s bonding authority to allow the them access to tax-exempt financing for their proposed reservation casino resort complex.
The IRS allowsIndian Tribes, as sovereign governments, to issue their own tax-exempt bonds for those things which other governments (like Taunton) are allowed to issue bonds for – but not for casino developments. It seems even the IRS knows casino financing would not be a good use of taxpayer supported debt.
The deal with Mayor Hoye and Taunton, however, appears to allow the Mashpee Wampanoag access to tax-exempt financing by laundering that debt through City-issued municipal bonds. The Wampanoag will be circumventing the bean counters at the IRS who would rule against a tribe seeking to finance casino building using their own tax-exempt bonds.
Taunton currently enjoys a high tax-free bond rating providing the developers very cheap financing of the reservation gaming complex build out – which is currently pegged at $500 million. The Malaysian-based casino conglomerate Genting, which is the financial backer behind the Mashpee Wampanoag project, has spent tens of millions in lobbying and campaign contributions to move the project forward and they would benefit significantly from cheaper bond financing guaranteed by the City.
Genting’s commercial bond rating from Moody’s is a Baaa1, while Taunton gets an A1. Interest paid on Genting-issued commercial bonds are taxed, interest paid on Taunton municipal bonds are not. All of this means tens of millions in savings for any portion of the casino development Genting and the Tribe can finance via Taunton municipal bonds. Further, it removes both Genting and the Tribe from any repayment liability or risk if payments are not made. The City of Taunton, as the bond issuer, will be 100 percent responsible for paying back bond holders.
What’s the likelihood of some problem involving debt repayment by the Wampanoag happening? Well, Indian tribes in general have been running into trouble paying off their debts with investors a lot lately – including those who have the backing of Genting:
- The New York Times reports that Foxwoods Indian Casino (also financed by Genting) is paying creditors $0.05 (five cents) on the dollar on their debts and was recently forced to restructure their existing $2.3 billion debt forcing creditors to write down more than $500,000,000 (half-a-billion) as losses.
- According to the Wall Street Journal, federal courts allowed the Lac du Flambeau Band of Lake Superior Chippewa Indians, which operates a casino in Wisconsin, to default on a $50 million bond to their investors.
- Last month the Mohegan Sun Indian Casino renegotiatednearly a billion dollars in debt paying creditors about ten cents on the dollar for money owed now and extending the timeline for repayment of the balance by another five years.
And the list goes on… But let’s just look at the Wampanoag Tribe and their record on financial management. Glenn Marshall, a recent former Tribal Council Chairman is just finishing up a prison sentence for multiple financial-related felonies using Tribe money. Current Chairman Cedric Cromwell, who was a Council Member and part of the Tribe's leadership under Marshall when these felonies occurred, would have challenges simply passing the basic credit check required to work in most casinos. Just last year (2011) Cedric Cromwell defaulted on his home mortgage requiring the Bristol County Sheriff to issue a court order to seize his property. And in 2009 Cedric Cromwell’s property was on a list to be seized by the City of Attleboro for failure to pay more than $13,000 inreal estate taxes and utility bills sent to collection. Current tribe members continually criticizeCromwell for financial mismanagement and failure to follow Tribe rules for disclosing spending.
How will Moody’s, S&P and other municipal bond raters treat Taunton when it starts issuing bonds on behalf of the Mashpee Wampanaog Tribe’s casino development? You don’t have to be Alan Greenspan to accurately predict the impending downgrades. That will cost Taunton taxpayers more to borrow money for real city infrastructure needs whether the tribe defaults on their debts incurred and now guaranteed by City taxpayers or not. Mayor Hoye must have some sweet deal cut with Genting and the Wampanoag to be willing to sell out his City in this manner.