Casino loan OK opens door to money
By Jason Begay
Navajo Times
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The Navajo Nation Gaming Enterprise could start withdrawing money to begin construction on the tribe's first casino in about two weeks.
On Tuesday the Budget and Finance Committee voted 7-0 to approve a $35 million line-of-credit loan between the tribe and the gaming enterprise to build the casino in Church Rock, N.M., just east of Gallup. No further approvals are needed.
The first-phase construction plans will be completed and equipment ordered within the coming weeks, official said.
But the financing delay comes with a cost - the casino opening date has been pushed back from July 4 to Oct. 16.
Many safeguards
According to the 60-page loan agreement, the gaming enterprise will have seven years to repay the loan at 11 percent interest. The agreement is a line-of-credit loan, meaning that interest will accrue only on the money that is actually spent.
The enterprise can withdraw the money in increments, enabling it to pay construction costs in phases. It must meet specific and strict guidelines before each withdrawal, according to the agreement.
"We're not going to write out a check and give it to them to do with what they please," said LoRenzo Bates (Upper Fruitland), who chairs the B&F committee. "There is a draw-down schedule and a limit on how much they can take out."
The gaming enterprise must provide documents and reports 10 days prior to receiving any money, including sworn statements by the general contractor and all subcontractors explaining how the money will be used, an updated schedule of costs, and affidavits and certificates of insurance from the architect and contractors, and a report of the work they will be paid for with the money.
In addition, the enterprise will have to fund a new position within the tribe, a construction expert to review the documents before money is disbursed.
The agreement also stipulates that the casino and its operations must maintain an "open book" on accounts that would allow the tribe or any of its agents to inspect financial records.
The enterprise agrees to be audited by the tribe at any time, according to the agreement.
During casino construction, the tribe can also arrange for sporadic inspections for quality assurance in construction, materials, and plans.
According to the plan, the commission will start making interest payments in January 2009 and will pay only interest that first year.
The agreement is meant to safeguard the tribes' money, which is provided by the Land Acquisition Fund, Bates said.
In the event of default, the interest would automatically increase to 13 percent. If, for some reason, the enterprise were to miss its monthly payment, the Navajo Nation controller would have the authority to withdraw the payment from the enterprise's bank account.
If the project does not meet its Oct. 15 completion deadline, the loan would go into default.
"One of the things we have been emphasizing is that this is not a one-page 'We're Going To Trust You' deal," Bates said.
Fast-track construction
The loan is designed to allow the gaming enterprise to embark on a fast-track construction plan, which would speed up the process and maybe decrease construction costs, said Robert Winter, gaming enterprise director.
This allows construction to get underway even before the final touches of design and blueprints are done, he explained.
Under the traditional method, all work would have to wait until plans were completed. This could hold up the job at least three months, Winter said.
"We wouldn't be able to do anything until the drawings were done," he said. "We wouldn't even be able to order equipment."
Mark Grant, the controller, said the full cost of construction should be known by June 20.
Grant also said the gaming enterprise would likely look into seeking another loan from an outside institution in the future to pay off the tribal construction loan.
Interest rates are plummeting due to cuts in the prime lending rate by the Federal Reserve, making it possible to borrow money at a much lower rate than the 11 percent rate charged by the tribe for the casino loan.
Once the casino is built, the gaming enterprise will have an asset that can serve as collateral and possibly qualify for a lower-interest loan to pay off its debt to the land fund.
Winter released a report earlier this month stating that the casino would measure about 56,600 square feet. At the time, Winter said the facility would not provide parking for semi-trailer trucks, a statement that contradicted previous claims that the casino would cater to truckers and tourists.
In an interview following the loan approval, Winter said the Church Rock casino will capitalize on local residents who now gamble at Sky City and other tribal casinos along Interstate 40. It will also attract tourists from I-40 and Gallup.
The casino plans to offer bus service to and from Gallup's 70 hotels.
"There is a substantial amount of tourists who travel to the reservation and stay in Gallup," Winter said. "There is also a substantial amount of Gallup residents who travel to Sky City. With this casino, we hope to keep them here."
Winter said he expects the casino to make about $39 million in gross profits in its first year, netting about $13 million after making its debt payments. By its third year, Winter said the casino could earn about $18 million a year in net profits.
The Budget and Finance Committee's approval of the loan marks the end of a long quest for money. It is, in fact, an alternate ending to an issue that many believed was settled last October, when the council approved a $100 million line-of-credit loan agreement with JPMorgan Chase Bank.
However, about one month later, B&F committee members questioned fees the bank planned to charge. The committee then drafted its own loan agreement using the tribe's Land Acquisition Fund, a move that had the backing of President Joe Shirley Jr.
The land fund was set up to purchase land on behalf of the Navajo Nation, but has been used for other purposes. The casino loan means the money is not being spent, but is invested in a business in hopes of yielding good returns and increasing the trust fund.
The fund currently holds $57.6 million of which $44.8 million is available for investment, Bates said. If the gaming enterprise were to use its full line of credit, that would still leave nearly $10 million available in the land fund.
Some delegates have complained that they were not kept apprised of the casino financing plans. Specifically, Leonard Tsosie (Torreon/Pueblo Pintado/Whitehorse Lake) said he first learned about the scrapped bank loan and the plan to use tribal money in newspaper accounts.
"They could have at least sent us an e-mail explaining what was going on," Tsosie said.
Bates, however, maintains that his committee acted within its rights. He provided a memorandum from legislative counsel Frank Seanez stating that the committee does have the authority to approve investments from tribal funds, including the tribe's land fund, without the advice or consent of the full council.