Anti-tax group keeping tabs on Convention Center financing

Thursday, August 28, 2008 at 1:08am
Rendering of proposed downtown convention center

Metro Finance Director Richard Riebeling remains steadfast in his assurance that the proposed new Convention Center will be financed with revenue bonds supported by the project, and not general obligation bonds.

If the impending financial feasibility study reveals that the project, estimated to come in over $600 million, needs general obligation bonds, then the prominent anti-tax group Tennessee Tax Revolt is poised to take action.

The Metro Charter contains a provision that could require voter approval before the bonds are issued, similar to the one Davidson County voters faced on the construction of what is now LP Field.

Currently, the proposed new Convention Center is in the predevelopment phase. Already, contracts for design, building and public relations have been handed out for the project.

Metro Council is expected to vote on financing for the Convention Center, to be located in SoBro, late this year or early next year.

“We have repeatedly told the Council that we do not intend to use [general obligation] bonds on the Convention Center,” Riebeling said. “That’s not something we have contemplated. It is extremely unlikely and it’s not what we’ve charged anybody with looking into. There’s no intention to use any [general obligation] bonds to support the center.”

According to Riebeling, a financial feasibility study will soon begin for the project. The study will include a maximum cost for Council to approve the issuance of the bonds. Already a feasibility study is being conducted for a hotel, which could be attached to the project as is often done with new Convention Center deals.

With the feasibility studies in their early stages, Ben Cunningham with Tennessee Tax Revolt is keeping tabs on the Convention Center project. Cunningham successfully advocated for a charter amendment giving voters the right to approve property tax increases in 2006.

The charter provides for a similar process on approving general obligation bonds. If six percent of the voters sign a petition calling for a referendum on issuing the bonds within 20 days of Council approval, then voter approval would be required.

“A shift to [general obligation] bonds will put it on our radar without question. It will bump it up our list,” Cunningham said.

The initial estimate for the Convention Center was $455 million, but already that number has risen to over $600 million. The attached hotel would be estimated at a minimum $200 million.

“[There is concern], especially on a project like this that is just apparently open-ended in terms of expense,” Cunningham said. “We have no idea what this monster is going to cost. The problem is of course no one knows.”

Riebeling maintained the project would be funded with revenue bonds, putting the burden of repaying debt on the revenue streams generated by the 1.2 million square foot facility. Riebeling said the choice to use revenue bonds was not related to the potential for voter-required approval on general obligation bonds.

“The voter approval, I haven’t even thought about it,” Riebeling said. “That’s not been close to my mind. Before I came along, and since I’ve been involved, it has been talked about that the flow of revenues that would pay for the project would be supported by users of the center. That’s still clearly what we’re focusing on.”

A memo uncovered by The City Paper earlier this year showed that previous Metro Finance Director David Manning had serious doubts about the city’s revenue bonding capacity for the project.

Based on the tourism taxes set aside for the project, Manning estimated Metro’s revenue bonding capacity to be in the neighborhood of $320 million.

Filed under: City News
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By: producer2 on 12/31/69 at 6:00

I am on vacation so I will not be joining what promises to be a great debate today. Enjoy!

By: JeffF on 12/31/69 at 6:00

"...has been talked about that the flow of revenues that would pay for the project would be supported by users of the center." We all know this is not true since we are not taxing just CC users, we are taxing all visitors, a vast majority of which do not care if the the medical field reps and Shriners have a new place to meet or not. If they issue revenue bonds and are indeed willing to eat their junk or investment-grade interest rates then I have very little problem with this. As long as the place is torn down after default. I definitely do not want to see a taxpayer takeover since that appears to be the plan.Glad to see Mr. Cunningham announcing that they are watching this. I am particularly glad to see this news source keeping us all advised. Keep up the good work NCP and let us know when Council sets the debt terms so we can get the 6%.

By: JeffF on 12/31/69 at 6:00

I am curios as to why a financial feasibility has not been completed already. I thought that the never-say-no-to-any-convention center "consultants" had said that this will bring in all of the 70% of conventions we cannot currently host? That would mean we will be hosting 100% of the world's conventions in no time.Shame on advocates for making this look like a done deal with all their press releases on contracts being granted and builders being chosen. You were able to fool a large number of Nashvillians into thinking resistance was futile.

By: frank brown on 12/31/69 at 6:00

When you subsidize something as ridiculous as ice hockey for a very very small Davidson County minority then why would you use restraint in building a convention center that will not be needed for another 10 years.

By: RTungsten on 12/31/69 at 6:00

I'd love to see a vote for this. I'm 100% sure it would fail once the truth about a BILLION dollar building comes out.

By: JeffF on 12/31/69 at 6:00

It would be interesting to have a vote. The other hotel owners get to lobby against a publicly built competitor built at the expense of their own customers. Gaylord's official take on this will be???????

By: dnewton on 12/31/69 at 6:00

If this project could be paid from user fees, financing could be gotten at a bank. The fact that it has to be financed with government assistance is a dead giveaway that the project assumptions are questionable. The old Convention Center operations could not be supported without taxpayer money according to Metro Budget figures. I can not hear anyone say that the total costs, both operation and construction will be supported by users. KMPG is telling all of the convention fishermen that they need bigger nets and an anchor motel. They don't tell you that the fish have the ability to go somewhere else and to reduce their size by cutting convention days short to adjust to economic realities. This only assures the overbuilding of capacity nationwide again. The areas of the country that will do the best are going to have the lowest total costs including taxes. They will also have the highest fraction of utilized space. The losers will be heating, cooling and managing the most empty space. Financing this motel/convention center could damage the credit rating of Metro. Credit rating agencies will judge the ability of Metro to walk away from a failure and attribute revenue bond activity to general obligation activity. Davidson County already has the highest per capita taxes in the state. You can call it revenue bonds and pretend that the government has no obligation to rescue it from failure but Fannie Mae and Freddie Mac were supposedly not backed up by the government either. Fannie Mae and Freddie Mac worked wonderfully as long as there was a cash stream coming in from users. When people chose not to pay or could not pay, the whole thing collapsed. This project is a microscopic version of the Freddie Mac and Fannie Mae fiasco just waiting to happen. When you build this thing and they don't come as predicted, those payments still have to be made anyway and the back-up plan is to go to the taxpayer. There is no difference between the Freddie Mac and Fannie Mae situation and this convention center. In both cases the government is giving itself permission to violate long held rules of thumb and statistical realities about the probability of being able to pay off debt with known debt to income ratios. I seriously doubt that there are insurance companies that would take the risk of insuring these bonds. Maybe the state employees retirement system would like to carry some of this risk? You don't see the businessman, Phil Bredesen, trying to get in on this action and throw in any state money do you?

By: morpheus120 on 12/31/69 at 6:00

Finally, Ben Cunningham is saying something worth listening to.The trend to build gigantic, lavish, new convention centers has ended and because of rising fuel and air travel costs, companies aren't really even putting on big conventions anymore. This would be a huge waste of taxpayer money and if the business community - who benefits from it - wants it, they should pony up.Now if only we can get Cunningham to realize that his anti-income tax and property tax referendum shenanigans are KILLING our state and our city. Not holding my breath though...

By: Time for Truth on 12/31/69 at 6:00

Gaylord is already being paid 80 million as 'hush money' to not complain about this as part of the package. And so they can compete better with MCC. The thinking behind this whole plan amazes me. Frank, when MCC opens in five years the convention industry will be headed in the direction of drive-in movies and automats. Remember them? MCC will be on the downhill in ten years. As companies continue to cut costs, fuel costs continue to go up, and technology brings people together without them leaving their desks, the meat of the industry will die off. Perhaps the only conventions that will remain are awards shows and political gatherings. And the Democrats this year are meeting in two sports arenas, not the convention center. One wonders if we're spending all this money just to get the CMA awards.A terrorist attack will only serve to accelerate the rate of decline in the industry and jeopardize all the pre-booked conventions.

By: JeffF on 12/31/69 at 6:00

Governments with good bond ratings do not have to take out insurance for GO debt. That is a tremendous savings in interest expense. Organizations with poorer bond ratings save money with insurance because the cost of the insurance is less than the interest expense savings. All bets are off with revenue bonds. The bond ratings for this venture will be quite low since the income projections are grossly short of the annual debt and interest repayments. The pie in the sky says eventually the hotel/motel confiscation taxes and rental car confiscation taxes will EVENTUALLY reach the levels to meet annual obligations. Meanwhile all the entities receiving hotel/motel and rental car taxes will need to get their money elsewhere from the Metro budget. Hmmm, is that a back door taxpayer funding of the convention center???The financiers are going to make everyone aware soon enough that the bids for these bonds will not generate the capital they are looking for. The discount on the bond price necessary to meet the risk is going to eat the working money to the point where nothing can be built. So here come G.O. And it should be painfully aware by now that a G.O. plan ends in the death of this thing. That is why they have the finance director stepping through this mindfield without answering any hard questions. There are a lot of sleepless nights being spent in downtown trying to figure their way around this referendum. Luckily they are not that smart and we will get to vote on this. If they were smart then they would not have been suckered into this tourism boondoggle to begin with.

By: shinestx on 12/31/69 at 6:00

Please! I hope the convention center looks nothing like that busy-mishmash of "classical" styles. I am confident that TVS will produce an impressive statement for Nashville. They better, for that much money!

By: TRHJR on 12/31/69 at 6:00

Hey morpheus... if u lov taxes... why don`t u take a hand full of ur CASH MONEY.. and just go on up there and give it to ol Bread, the Gov... But u won`t cause all u want to do is b----... u must be some state employee, get a real job...

By: dnewton on 12/31/69 at 6:00

morpheus120: I don't think Ben Cunningham is killing anything. It is a big mistake to think that the problem is the activism of just one person or even a few. This state and its local government combs out 8.5 cents of every dollar made by people or business. They are also expanding faster than the background growth of the state. Disposable income in Davidson County is declining while revenues are increasing at almost identical rates of 3.5%. The 2002 tax cut on the federal level has been totally neutralized by the increases in local taxes since then according to Bureau of Economic Analysis records. Disposable income is equal to personal income minus taxation. Increasing taxes only lowers disposable income unless the activity of the government somehow supports individual or business productivity. The trick however is to improve productivity of all businesses rather than favor one at the expense of others. Governments must become more productive and one way of doing that is to get rid of ineffective missions and to modernize. Manufacturer's are offloading their people costs at a rate of about 3% per year but are continuing to manufacture between 21 and 22% of world goods. The government should do the same. Instead, the number of government jobs(including teachers) may already be equal to the number of manufacturing jobs. We won't know for sure until about two years goes by. Cumberland County has found that it is not easy to pay for their schools when a major fraction of their population is elderly and the state fails to keep up its share of BEP distributions. Retirement incomes are lower than working incomes and the feds are still the biggest grave robbers on the planet. The modernized and partially funded version of the BEP has transferred a lot of the burden from the state to the local government. This governor saw the recent demographic sag in school enrollments as an opportunity to throw his base a pre-K program rather than a chance to adjust to the demographic reality. The next ignored demographic reality is that we are approaching a period in time that two generations can be retired at the same time. Why should anyone stay in Nashville and pay off the per capita debt of $3200 when they can move to any other county?

By: JohnBirch on 12/31/69 at 6:00

JeffF:Babe, you need to keep up. Bond Insurance is dead. This one lives and dies on its own credit.

By: mgd2b on 12/31/69 at 6:00

Why can't they just spend half the money and upgrade the existing convention center. They could upgrade the exterior facade to give it the classical style they want for Nashville. I am no engineer, but I'm sure they could find a way to expand the space available at the current site (don't build out build up). It seems like that would be a much better use of funds.

By: nashbeck on 12/31/69 at 6:00

If this doesn't get built, is there any way we could transfer the money being collected already and use it to fund a lightrail/streetcar system within Davidson County?

By: producer2 on 12/31/69 at 6:00

You guys just keep talking to each other. The band of 3 should have a HUGE voice in this whole thing. LOL....

By: JeffF on 12/31/69 at 6:00

Beck the answer is yes. It would take a change in the arbitrary earmarking of the revenues or a leader interested in just saying no to the tourism earmark. A lightrail system not based on a geographic point as a hub would be a real addition for the people of Nashville. In reality though Nashville would blow the opportunity by building it with a downtown point as a hub with all riders having to go through downtown and change trains or modes to get anywhere. The best system would be Calgary's where multiple lines run along a single track but passengers can switch to different trains at multiple points with other originating boarders. So riders on any of three lines can switch to a different train in any direction at any of 9 points. Going one step further the streets with the multiple stops/connection are transit only (bus and train). I can see Church St. as a street with transit traffic only (a rail and bus lanes), with trains going across the river past the stadium to East Nashville and the airport with its opposite serving down to Baptist, Centennial, Vanderbilt, and Green Hills. Another line from Franklin Rd/8th Ave from the south to the I-65 corridor past Trinity. Maybe even a line from Murfreesboro Rd through to Charlotte Pike. 5 legs not built all at once but not overreaching to other counties or cities either. Light rail can be built more cheaply than commuter rail, with some systems using excess road right-of-way to avoid acquisition costs.$1 billion in capital debt would build a lot of light rail, providing you do not hire the consultants and experts that have driven the Star into ruin. Make this a home grown project and don't hire the cheerleaders to run the thing once it starts. Skeptics are more likely to do a better job running a system they are not completely sold on. Evangelist will over-promise and under-deliver.

By: JeffF on 12/31/69 at 6:00

3 votes is a huge start produce. Put the words "Nearly $1 billion and it still will not pay its own way, make the schools better, or lessen traffic" on campaign literature and there will be a lot more. Maybe the words "$1 billion dollars, because the Marriott and Hilton owners need the money" can be an opposing campaign ad? Better yet "$1 billion: you were just going to blow it on minor league baseball anyway".

By: nashbeck on 12/31/69 at 6:00

JeffF- Good points on the public transportation. However, I think lightrail should be implemented within Davidson County before commuter rail (commuters need a good transportation system within the city at their destination). Unlike you, I want both of these projects. I thin it will be great to have a new convention center and hotel. I understand your points of disagreement, but we'll just have to agree to disagree. I think rising fuel costs will be impeded by new technology. This is not the first time we have seen rising fuel costs (1970s for example). I definitely hope it pays for itself, which i think it will. Economists think so too. I want what is best for Nashville, and I'm going to vote in favor of this.

By: producer2 on 12/31/69 at 6:00

Don't confuse them with facts....

By: Time for Truth on 12/31/69 at 6:00

prod, thought you were on vacation. Kick back and enjoy, dude. This boondoggle isn't worth your time when you're trying to chill. You can resume your advocate's position when you deplane.

By: Time for Truth on 12/31/69 at 6:00

shine, you are right, that retro look doesn't cut it when applied to six or seven city blocks. Looks like the Roman baths, which when you think about it is an appropriate statement.Build the Boulevard instead!

By: Time for Truth on 12/31/69 at 6:00

Atlanta put a ton of money into a rail system, and that system is well designed and it works, but their roads are still filled with cars. No surprise that our cobbled up used parts railroad isn't setting the world on fire. I'm all for mass transit, it just needs to be user friendly to have users.

By: JeffF on 12/31/69 at 6:00

when did bond insurance die? Governments use it all the time when they have an A or less rating on a particular issue.