OPINION: Reno is Giving Away Tax Money

Tax Increment Financing (TIF) using STAR Bonds (Sales Tax Anticipated Revenue) is a mechanism where future increases in property and sales tax revenue from development are used to finance upfront infrastructure and development costs.

In 2007, the City of Reno established a Tax Increment District (TID) to support the development of Cabela’s retail store near Verdi. This initiative involved the issuance of STAR bonds to finance infrastructure improvements for the project and the amount issued was $34.7 million.

The Cabela’s store, spanning approximately 129,000 square feet, was envisioned as a destination retail outlet featuring a big game museum. The project was anticipated to generate significant economic benefits, including the creation of jobs, as well as attracting over two million out-of-state visitors annually. The anticipated results did not happen.

The reason why this story is significant is that the GSR Casino and Jacobs Entertainment are asking for $ millions in STAR bonds from the City of Reno as are other developers.

Are STAR Bonds a good idea? The answer is no. STAR bonds are not good for the taxpayers or for the investor. They are only good for the corporations that get free money. STAR Bonds divert tax from public works. New development brings competition that diverts revenue from existing businesses. STAR bonds reduce tax revenue to the city as 75% goes to debt payment. STR bonds reduce the credit rating of the city as the bonds under-perform and their value decreases.

Typically a corporation like Jacobs or GSR would issue their own bonds to finance building projects. They would have the obligation to pay the interest and eventually to redeem the bonds. With STAR bonds the principal and interest are paid from estimated incremental sales tax attributed to the project. The corporation that gets free money has no obligations and the investors are left holding the bag.

Results for Cabela’s

The financing for Cabela’s was based on optimistic projections of retail growth and out-of-town visitors, but revenues were lower than expected.

The “Meridian Business Advisors Report” from 2006 provided initial estimates used to justify Cabela’s STAR bond project. However, the later analysis in the report “Reevaluating STAR Bonds in Northern Nevada” by Matthew D. van den Berg from 2010 finds discrepancies between projected revenues and actual performance.

The Berg study highlights one major flaw in the original STAR bond projections—the failure to account for displaced retail spending. Cabela’s did not bring in new revenue but instead shifted existing consumer spending from other local retailers.

The Berg report notes a negative correlation between gaming revenue and sporting goods sales, suggesting that some tourist dollars may have shifted away from casinos to Cabela’s. The report found that the city council did not conduct a thorough displacement analysis, despite the Nevada STAR bond law requiring it.

As far as the tourism impact the original claim was that 68% of sales would come from out-of-state visitors. The revised estimate that Cabela’s later acknowledged is that only 57% of sales came from out-of-state shoppers. License plate surveys conducted for the study suggest the percentage could be even lower, meaning more local spending was diverted than initially projected.

The short fall of sales tax revenue was confirmed at a City Council meeting on Dec. 11, 2024 when Matt Taylor from Finance while reviewing a recent audit report explained that the Cabela’s debt, which appears unusual due to a negative $17 million balance in the fund. This is because the city only pays the portion of the debt that has been covered by sales taxes from Cabela’s.

The City of Reno AFCR. (City of Reno Annual Comprehensive Financial Report, Fiscal Year Ended June 30, 2024) reveals that revenue covered by STAR bonds has only achieved 46% of projections.

Now the GSR is asking for STAR Bonds

The Grand Sierra Resort (GSR) in Reno is advancing plans for a $1 billion development project that includes a $400 million arena. The project is on track for a groundbreaking in late June 2025, pending approval for tax-increment financing.

Initially, GSR indicated that the project would be entirely privately funded. However, in October 2024, GSR requested approximately $97 million in tax-increment financing from the City of Reno, representing about 9.7% of the total project cost.

The Reno City Council has authorized staff to continue discussions with GSR and to commission a third-party review to assess the project’s potential impact on the city. GSR aims to begin construction in spring 2025, with the arena expected to be ready for use by the University of Nevada’s basketball team in fall 2027.

As of now, the project is progressing through the necessary approval processes, and further developments are anticipated as discussions continue between GSR and the City of Reno.

Conclusion

The Cabela’s STAR bond project did not meet its original financial expectations. Sales were lower than projected, reducing tax revenue and weakening the argument that the project significantly benefited the local economy. Tourism impact was overstated, with many sales likely coming from local spending rather than out-of-state visitors. Better oversight and financial modeling are needed for future projects.

I don’t think that the City of Reno should be financing corporate properties. Such bond-financed projects are almost never successful. Given this situation, the residents of Reno should object to any further STAR bond issues.

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