Casino lease changes make me bluePublished 12:07am Sunday, February 12, 2012
Valentine’s Day is only two days away and, quite frankly, I’m not in a terribly gushy mood at the moment.
What makes me blue as we approach the day of pinks and reds is the issue facing the City of Natchez at the moment — proposed changes to the Roth Hill casino lease.
The relationship between casino developers and the city seems contentious at best.
It’s reminiscent of schoolmates sharing Valentine’s Day cards with classmates years ago. Invariably, the class troublemaker passed out cards to everyone — even those normally despised. Recipients opened the cards with careful hesitation, wondering what nasty surprise might lurk inside.
The same skepticism came over me while looking over proposed changed to the city’s land lease. Developers hoped to seal up changes a week or so ago and thought simply making goo-goo eyes at aldermen would do the trick.
But it wasn’t so simple.
Aldermen, encouraged by a large room full of angry citizens who also helped push the matter, handed the Valentine back and said, “No thank you.”
Last week, the casino suitors returned to the aldermen’s doorstep, this time bearing a much simpler card along with a box of chocolates — the promise of quick cash.
Unexpected cash in an election year is a great boon for incumbents.
The casino’s chocolates, however, were not new or additional cash, but more of an advance on cash the developers will owe anyway.
In essence, the new proposal, which aldermen will consider next week, suggests the developers would prepay $50,000 in rent each month to the city. That would be applied to the rent the casino owes the city once the casino opens.
Such sweetening of the pot seems like a great thing for the city — most of us would certainly appreciate getting an extra $50,000 each month.
But the lease proposal also comes with other caveats, including caps on the amount the rent payments to the city can be adjusted. The original document suggested that every five years the rent could be adjusted by the difference — on a percentage basis — that the U.S. Consumer Price Index moves.
The proposed amendment caps the adjustment at 8 percent every five years.
An 8-percent increase sounds pretty good, but one has to wonder just how often does the CPI level increase less than 8 percent over five years. Since the original lease is just about five years old, consider what the difference in CPI was from 2007 when the original lease-option was signed and the end of 2011.
In December 2011, the CPI was at 225.672. In January 2007, CPI stood at 202.416. That’s an increase of 11.5 percent, but the new cap wouldn’t allow that. It may seem like it’s only a few percentage points, but they add up quickly.
Let’s assume the casino was paying $1 million in annual rent — it could be more depending on how much gaming revenues they create.
Under the original lease the rent would have been adjusted up by approximately $115,000 each year or approximately $575,000 over the five-year term.
Under the proposed 8-percent cap the developers seek, the adjustment would be $175,000 less over five years.
That’s certainly not chump change and certainly a big reason why developers seek to change the original terms.
But perhaps the big jump in CPI over the last five years was some kind of anomaly. Looking back another five years, the CPI jumped nearly 14 percent. Five more years and the increase was 11 percent.
Five more years — we’re back in the 1990s now — and it jumped 14.1 percent. Going five more years and the growth tops more than 22.5 percent.
Something doesn’t smell sincere does it?
Kevin Cooper is publisher of The Natchez Democrat. He can be reached at 601-445-3539 or email@example.com.