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Randy Miller’s ambitious endeavor to build a youth-sports complex in the Sonoran Desert turned into a financial catastrophe, revealing cracks in a $600 billion corner of the municipal bond market. Despite red flags and questionable business practices, Miller secured $280 million through an eight-page application with the Arizona Industrial Development Authority (IDA). The bonds, offering high yields near 8%, attracted major institutional investors like Vanguard Group and AllianceBernstein.
However, Legacy Park, the dream project, faced challenges from the outset, including the pandemic’s impact on the sports industry and economy. The collapse of the project highlighted a long-standing issue on Wall Street—billions of dollars are funneled into high-risk projects with minimal vetting, leveraging the names of state and local municipalities.
Conduit bonds, exempt from corporate stock and bond regulations, are issued by various U.S. agencies without substantial oversight. These bonds, totaling around $600 billion, represent approximately 15% of the municipal bond market. Lacking checks and balances, they fund a range of projects, from established businesses to risky ventures like nursing homes, charter-school startups, and for-profit enterprises.
As borrowing costs surge, concerns grow that more projects funded through conduit bonds may face financial challenges. The lack of rigorous vetting by issuing agencies and the absence of responsibility for project-related debt if it fails contribute to the vulnerability of these ventures.
The collapse of Legacy Park, once an ambitious vision, now stands as the third-largest default in the municipal bond market since the pandemic. This incident sheds light on the flaws in government-sponsored financing arrangements, emphasizing the need for increased scrutiny and accountability.
