The Sparks City Council is anxious for the Legends at Sparks Marina to progress, but reaching a financial agreement with RED Development that alleviates the city's risk may prove difficult.

Council members held a special meeting Wednesday morning to hear presentations on financing the $1.2 billion destination retail center that is expected to draw more than 800,000 tourists annually to Sparks. The council discussed the possibility of using Tax Increment Financing (TIF) bonds if Sales Tax Anticipated Revenue (STAR) bonds are insufficient to cover a little more than $156 million in project and prevailing wage costs.

"We need to understand the fundamentals to adjust our risk profile," said Dan Wyles, principal of the city's financial advisors. "The (interest) rates have gone up. We are in one of the stranger periods of financing in 25 years I've done this."

The city can use three mechanisms of financing for the project, including STAR, TIF and Local Improvement District (LID) bonds, and any of these can be used at the same time, said Sparks Assistant City Manager Randy Mellinger.

The first series of STAR bonds will be used in conjunction with the LID assessment. This arrangement will allow leases to be signed for some retailers to open this fall.

Mellinger said the second series of STAR bonds will allow another set of businesses to open at Legends in early 2009. STAR Bonds are repaid by all of the revenues received by the city or county from any transient guest, local sales and use taxes that are collected from taxpayers from within the district.

TIF bonds are dependent on improvements made within a redevelopment district. Redevelopment Area 2, which includes Sparks Marina, Conductor Heights and the Oddie Boulevard, will expire in about 20 years. The Sparks Redevelopment Agency is tasked with improving the quality of these neighborhoods.

"When new development occurs, it gets assessed a new property tax," Mellinger said. "If I build a new building, most of the taxes, whether it's a vacant lot or older building, will go back into redevelopment and the increment gets higher."

Mellinger explained that the TIF bonds are a supplement in the event that STAR bonds don't cover the total project cost.

"The intent of tax increment is to spur project investment," he said. "What we're trying to do is leverage the money that is generated by the Legends project and put it back into the developers to get them to make a private investment (to draw more tourism)

The LID is an assessment on a property's infrastructure that includes pipes and utilities.

Mellinger said it would be better to use the senior bonds, which include the sales tax, but if they are not as high as hoped, then a mezzanine, which Mellinger described as "mid-tier" that would combine STAR and TIF bonds, would be utilized.

Overall, the Legends development will implement all three options in some way, but its construction puts the city in a fiscal gamble.

Steve Graham, vice president of destination development for RED, reported to the Sparks City Council Wednesday that the developer is hoping to devise a plan to share the projected financial risks associated with the Legends of Sparks Marina project with the city.



Councilman Mike Carrigan showed concern about Sparks taking on that obligation. He repeatedly asked if the burden of the risk has fallen to the city or to RED Development.

"I don't think we should be a bank," Carrigan said. "Words like 'significant risk' bother me. ... If this thing goes south, we're stuck. If the steel goes up, that's a risk. That is a huge problem for me."

Sparks Finance Director Tom Minton reminded the council, "We are making a promise to sell the bonds regardless of the market conditions."

Olympia Gaming's hotel-casino, the name of which was finally announced as the Legends Bay Casino Resort Spa, is expected to play a significant role in generating property taxes that could help pay off $13 million in TIF bonds issued by the city.

Wyles said it would be the city's obligation to cover $156 million of the cost of the development.

Council members also received an update on the status of Legends.

Neil Krutz, community development director, said the city is currently working to issue entitlement permits for the tenants. Some are at various stages of the process, including architectural elevation, site plan review and building shells. The tenants must apply for these permits to be approved for the Legends' October opening.

At Councilman Phil Salerno's request, Graham agreed to conduct a study to determine the lifelong economic impact of the Legends development based on the Legends at Village West in Kansas City, Kan.

The construction of the Legends Bay casino, which is planned in two phases, will cost about $450 million to build and is likely to open in May 2010.

Phase 1 calls for 310 hotel rooms, four restaurants, a high-end spa and fitness center, a water show and a 1,200-space parking structure. Phase 2 would complete the resort hotel with its remaining 690 hotel rooms and more dining areas.