Convention center financing expected to pass

Monday, January 18, 2010 at 10:05pm

The case against building a new $585 million convention center has been loud and clear, but the most expensive municipal project in Tennessee’s history seems poised for Metro Council approval tonight.

Though contested by a well-fueled opposition group and a handful of council skeptics, backing of Mayor Karl Dean’s Music City Center seems to have only mounted over the waning days — following a Metro government rule of sorts that says last-minute support falls behind the will of the mayor.

“In our system, the mayor gets a fair amount of credit for being the leader of the government,” said project supporter At–large Councilman Ronnie Steine, who chairs the Budget and Finance Committee and was first elected to a Metro office in 1991. “I think it’s sort of a natural tendency that as people begin to make decisions and consider information that the position of the mayor ends up being a persuasive one.”

Under the finance plan, a combination of taxes and fees that target tourists would over time pay off bonds used to bankroll the project. Non-tax revenue from Metro’s general fund would back up the bonds. There is also a $40 million reserve fund set aside to cover shortages. Only after that is expired would general fund dollars be used.

With Councilman Carter Todd, a Gaylord Entertainment Co. executive, expected to abstain from voting, 39 council members at most will have a say on the project. Twenty votes are required for a simple majority.

Lobbyists, council members and other stakeholders all seem to conclude Dean and project supporters have easily assembled an adequate number of votes. At the lowest, aye votes could end up at 25, observers have concluded, and at the highest, votes of approval could reach 29.

Projections are reinforced by a list of previously noncommittal council members who have officially jumped on board behind Music City Center in recent days.

They include Megan Barry, Lonnell Matthews Jr. and Jerry Maynard, all of whom voted for the project in last week’s Budget and Finance Committee meeting. In addition, Councilwoman Vivian Wilhoite, who had revealed some hesitance, announced her official support for new convention center in a letter distributed Sunday.

Even Councilman Jason Holleman, who has regularly questioned Music City Center, hasn’t ruled out voting for the project’s financing.

“I remain skeptical about whether the MCC will perform as projected,” Holleman said in a written statement. “However, I am optimistic about what the state officials are doing to fill the existing convention center space with the Medical Mart, and I believe their efforts may be the deciding factor in the overall result for Nashville.”

To be fair, undecided Councilman Jamie Hollin also announced opposition to Music City Center over the weekend. Nonetheless, it may be too little, too late for opponents to garner enough votes.

“Based on many of the statements that many people have made over the past few days, I’m optimistic that there’s a considerable majority of the council that’s going to vote in favor of the project,” Steine said. “I don’t anticipate any surprises.”

Project proponents have called Music City Center key to keeping Nashville competitive in the convention and tourism industry, a catalyst for future downtown growth and development, and vital to the city’s economic activity, an argument they say is boosted by a feasibility study conducted by HVS Consulting that suggests a new convention center would add another $135 million in Nashville’s economy each year.

Meanwhile, opponents have questioned the viability of the convention industry as a whole and the possible detriment a big-boxed convention center could have on downtown growth. They’ve also pointed out that taxpayers aren’t necessarily “off the hook,” so to speak, as Metro’s general fund will back up the bonds.

Opponents, led by a group that calls itself Nashville’s Priorities, have also worked to hold a public referendum to decide the fate of the Music City Center, with more than 8,300 petitions expected to be delivered to the council tomorrow afternoon. 

21 Comments on this post:

By: dnewton on 1/19/10 at 2:07

I don't understand how those reserve funds are suppose to be an excuse for funding a bad idea. The cash in those firewalls are constructed with taxpayer money. They would not have to be there and could be used for other things is the convention center default was not a threat. It sounds like it is OK to burn one particular pile of money to prevent or delay the burning of another pile of money.

Adding another $135 million to the economy is not the same as making $135 million that can go directly to paying off the bonds. Prostitution and Drugs are probably adding $135 million to the economy too. Over 30 years, it would only be about a 8% rate of return if all of it went to a billion dollar project.

First of all, I doubt that anything but a wild guess is possible on such estimates. There seems to be no negative consequences for making a "bad" guess. I would like to know how you make such an estimate so that one could assure that the predicted benefit was not overlapping the income from the existing convention center business. The government data base from the Bureau of Economic Analysis and the Labor Department is too general in nature to be of any value. The accounting firms in the convention business tend to have hospitality clients that could be mined to get better estimates but there is nothing in their past track record of predictions that shows me that they can be trusted. Most of the people and businesses that get that money are only going to be contributing a fraction of that in sales and property taxes. How much of that $135 million is airline tickets? The last time I checked, there was a provision in the law to make sure that half of the sales tax income went to the schools first.

By: CitizensWin on 1/19/10 at 6:29

If this prediction hold true,
Nashville Metro Council has held a deaf ear to their constituents, obstructed a public referendum and have denied the will of the people based on polling.

Indeed: Light A Candle For Metro Council
Their part-time status as representatives has been diminished to the lock and step politics of 'go along and get along' because they have not listened to the will of the people.

By: Funditto on 1/19/10 at 6:57

This council passed English First which was defeated when put to a public vote. This was a prime example of the fact that these 40 members do not necessarily represent what the general public wants and/or needs. Let us vote on it - $250K is much less than the possible millions this may cost in the long run.

By: producer2 on 1/19/10 at 7:41

dnewton,
The $40 million in the reserve fund is part of the bond package that the project is borrowing. It does not come directly from the General Fund.
Second law abiding citizens do not sell drugs or prostitution and will reap the rewards of this money. government will also gain the tax benefits of it as well. That tax revenue number is $12 million dollars. Metro decides how to spend that money as it goes directly into the General Fund. The people who will have jobs will also pay taxes to the city if they live in Davidson County.
Finally there were no guesses involved in the projections as they used historical data from the past 3 years of room nights booked in Davidson County to come up with their numbers. They did not just pull these out of the sky.

By: producer2 on 1/19/10 at 7:43

THIS Council did not vote for English Only which it is why it went to a vote. Once again Councilman Crafton did not get his way so he used outside influence (sound familiar) to try and get what he wanted.

By: govskeptic on 1/19/10 at 7:44

The story states "Well-fueled opposition group". What does that mean?
Is it as much money? I don't think so. Is it TV or press time/words? I
don't think so. Like Disneyworld purchasing land many yrs ago, the
deal was done before the public knew what was about to hit them.
The supposedly undecided were never undecided they just didn't
want to listen to any opposition from their district until the last minute.

By: HCPforme on 1/19/10 at 8:41

"By: producer2 on 1/19/10 at 7:41
dnewton,
The $40 million in the reserve fund is part of the bond package that the project is borrowing. It does not come directly from the General Fund."

This is akin to borrowing $25,000 to buy a $20,000 car. The plan is to use the "extra" funds to make payments if necessary. Try that approach next time YOU go to fnance a house.

By: HCPforme on 1/19/10 at 8:46

The most likely use for the reserve funds will be cost overruns on the project before completion. They aren't a "firewall" to protect the general fund, but that is how they are advertised.

By: TITAN1 on 1/19/10 at 9:32

Do the people who don't want this really think they are in the majority? Thousands of people who would vote "Yes" don't bother posting on message boards or call into radio stations or take part in polls. They would wait and cast their vote just as the "Yes" people who voted for the stadium. I think it will be built and I hope it works out well. But, I can't help but think that many of the "No" people want it to fail if it is built. So much for wanting Nashville to prosper.

By: producer2 on 1/19/10 at 9:34

HCPforme,
Nice try and typical of opponents attempts to alter the truth. The reserve is done in almost all loans of this type and can be had in a home loan if you are actually building the house. Construction loans in housing are always higher than the actual cost of building the house. Do your homework. It is first designed to help defray payments in the early years while under construction and then will become part of a reserve that most probably grow in size as surplus is added to the coffers.

By: Pmd12931 on 1/19/10 at 11:24

But us constituents will get our say at the next election, and I hope the memory holds good and we vote out Dean and all his rubber-stampers who voted Yes on a big project, costing big bucks that could be used for our schools and other needs, and not another building for us to pay the upkeep on.

By: govskeptic on 1/19/10 at 11:32

producer2 went to somekind of weird PR school. Sling hash
and a rack of lamb will appears. Of course, that's been the
campaign all the way through on this project. Throw out numbers
with a consulting fees attach and they will believe you. Many
for legitamite reasons don't buy it. Because the Titan's and stadium
are very popular still doesn't make it morally right for hard working
taxpayers to be subsidizing. This is a totally different matter.
The TV cameras and cheerleaders won't be attending for all to
pound their chest over.

By: dnewton on 1/19/10 at 12:11

By: producer2 on 1/19/10 at 7:41
dnewton,

By: producer2 on 1/19/10 at 7:41" The $40 million in the reserve fund is part of the bond package that the project is borrowing. It does not come directly from the General Fund."

dnewton: It still sounds like the money is tax money, just borrowed tax money. Most bond issues are structured with a reserve that earns interest for the entire life of a good project.

By: producer2 on 1/19/10 at 7:41 "Second law abiding citizens do not sell drugs or prostitution and will reap the rewards of this money."

dnewton: I was trying to show how useless these economic models are in deciding whether or not it is wise or ethical to engage in a process that turns over money. Good public policy usually has an an ethical underpinning or concept that propels the action. In this case, the government is competing with existing businesses and even causing motels to pay for a Convention Center that may generate an inadequate increase in room nights for that business.

.By: producer2 on 1/19/10 at 7:41: " government will also gain the tax benefits of it as well. That tax revenue number is $12 million dollars"

dnewton: Defining the income of all businesses and people as a benefit is a critical part of the self-deception. The BEA data base is based on the County or the Metropolitan area, not downtown Nashville. They probably have the data based on zip code but don't publish that. It is unlikely that the accountants have all of their clients accounts within range of the Convention Center since it does not exist yet. I believe that they could possibly have the best data base and I agree that a statistical estimate is possible and would have some value. This number is critical to the motel income and will change due to future trends .I also know that there is an unnatural tendency for these estimates to be wrong and wrong in the wrong direction.

I don't think their data base can predict the ratio of people attending locally versus flying in. Businesses and people also create costs. This is not about the benefit. It is about the costs minus the benefit. This Convention Center is an optional cost that could be spent on some other alleged benefit.. What I would like to know is the ratio of money spent by people in Davidson County going to other conventions. It seems like, from a classical standpoint, the difference between the exported money to other convention centers minus the imported money is the net benefit. Just because it is called a benefit does not mean it is a benefit until the costs are subtracted.

By: producer2 on 1/19/10 at 7:41:" Metro decides how to spend that money as it goes directly into the General Fund. The people who will have jobs will also pay taxes to the city if they live in Davidson County.

dnewton: Without the Convention Center, they will have some other job. Even if they are on Welfare, they will have an income that can "benefit" the city. I doubt that the highly regressive sales taxes on the workers will actually pay for the project. If I am right, Metro is creating and perpetuating a class of worker that does not support its own costs. Even if I am wrong about that, they would be paying taxes anyway. I suspect that the convention center will steal some workers from other businesses and that most of the existing Convention Center workers will simply change location once the old convention center is shut down. The benefit is the difference in the new job and the old job without the convention center. The proper analysis would be the net increase in income to the city not the income that they would get anyway. To get a real benefit, new people have to have new income. or existing people would have to get an increase in earnings that would have existed without he Convention Center. Metro, like most cities and counties in Tennessee, never gets enough money to cover all of the costs of taking care of the citizen.

By: producer2 on 1/19/10 at 7:41:" Finally there were no guesses involved in the projections as they used historical data from the past 3 years of room nights booked in Davidson County to come up with their numbers. They did not just pull these out of the sky.

dnewton:: I don't think they pulled the data out of the sky. I think they did the best they could with what they had and it wasn't much. I believe that in their real accounting jobs, they work for the hospitality industry and would not want to harm their client pool. If they are wrong, they will get over it rather quickly and go right on to the next city. I think they used the same standard of measurement that has produced disaster in most other cities with respect to Convention Center predictions. Metro is not too big to fail.

By: HCPforme on 1/19/10 at 12:39

By: producer2 on 1/19/10 at 9:34

producer2, nice try yourself. "Construction loans in housing are always higher than than the actual cost of building the house."

Not unless you get a sweetheart deal. Construction loans provide cash on an as needed basis to complete the project and are generally audited to make sure the money is going toward the project. During construction, interest only payments are made on the outstanding balance. There is no surplus of funds above the cost of building.

I maintain the reserve fund is actually to pay for the certain cost overrun. What project of this size built by government comes in under budget?

By: producer2 on 1/19/10 at 1:45

armchair quarterbacks all. I guess the grapes must be pretty sour today....

By: producer2 on 1/19/10 at 1:51

how did that big Nashville Priorities petition turn out? Sharp said he would easily get 25,000 to sign. What was the final tally? I read there were over 300,000 registered voters in Davidson County, surely he could get 8% to 10% to back this up. Weren't the people against this by a WIDE margin?

By: idgaf on 1/19/10 at 1:58

I will remember when it comes time to vote again who voted for this rip off.

By: HCPforme on 1/19/10 at 2:24

Yeah, us normal folks don't know squat.

Memphis Pyramid was going to revitalize downtown Memphis too. Right next to Mud Island, another grand idea. Now it costs $1M a year to keep closed.

Remember when the new Opry Mills Mall was going to be the Mall of America of the South? A destination mall!!!

Remember when Dell was bringing jobs to TN so they got tax breaks? Wasn't the state PAYING Dell to bring jobs here at $1500 a head?

Beale Street Landing was to revitalize the Memphis waterfront. To be constructed in 2 years, put off for awhile, it is now 3 years behind schedule, cost is up 25% due to inflation alone. The cruise paddlewheeler companies that were to use the landing went out of business since the project started. This $20M project is at $33M and climbing. Smart people were pushing this project too.

By: producer2 on 1/19/10 at 2:27

I'm sorry I didn't hear your response, how many signed petitions?

By: HCPforme on 1/19/10 at 2:29

Oops, my mistake - Updated in December 2009

Beale Street Landing: Not on Time, Not Within Budget

The Riverfront Development Corporation says the cost of former mayor Willie Herenton's signature riverfront project has increased by $8.9 million and the completion date is now the summer of 2011.

The cost overrun was not unexpected. When BSL came before the Memphis City Council in May, RDC director Benny Lendermon insisted the project cost, originally pegged at $27.4 million, was $31 million even though various documents from City Hall showed the cost was in excess of $33 million. When Councilman Kemp Conrad asked about "the delta" between the numbers, Lendermon said reports about the higher number were inaccurate.

It is now clear that they were, but on the low side, not the high side. The RDC now says the "current construction estimate" is $35 million.

By: Floyd2 on 1/19/10 at 3:22

The city agreed to a set price of $415 million for construction. If the cost runs over, the contractors pay it, not the city.

Seriously, most of the people complaining about this project need to get the facts.