Report: Taxpayers on hook if convention revenues fall short

Thursday, January 14, 2010 at 1:19pm

A significant shortage in projected hotel-motel tax revenues would force Metro to annually take millions from its general fund to bankroll a proposed $585 million convention center, according to a report released by Goldman Sachs, the would-be bond underwriter for the proposed Music City Center.

A feasibility study conducted by HVS Consulting says if revenues from a combination of taxes and fees that target tourists flow in as anticipated, Metro should soundly be able to pay off the project’s bonds over time. Still, under the proposed finance plan, non-tax revenue from the city’s general fund — dollars generated from city licenses, permit franchise fees, fines and penalties, for example — would back up those bonds.

Metro Finance Director Richard Riebeling has said he doesn’t anticipate the non-tax revenue ever being used, maintaining that it’s part of the finance package only to market the bonds to investors and lower interest rates.

But several Metro Council skeptics have raised concern over the non-tax revenue pledge, wondering at what point would Davidson County taxpayers be on the hook.

In a Goldman Sachs document e-mailed to the council Thursday, figures suggest that if 90 percent of the revenue streams were generated, then the general fund would remain untouched.

However, if only 75 percent of the projected revenues were collected, the general fund would be used for an eight-year stretch, with a high of $6.6 million used in 2019.

And if just 50 percent of HVS forecasts were met, non-tax revenues would be required for 25 years, with Metro tapping between $15 million and $18 million in general fund dollars each year during one 10-year stretch. 

“In our opinion, the HVS numbers are conservative in nature, properly taking into consideration the current poor economic conditions,” Riebeling wrote to council members in a letter accompanying the report. “Their numbers also do not reflect the impact of a headquarters hotel or the Medical Trade Mart.

“Finally, we should also remember that the project is estimated to generate an additional $12 million in tax revenues for Metro Nashville over and above the tax revenues used to retire debt and operating costs of the project,” Riebeling added.

The council is scheduled to vote on a resolution to approve the finance plan Jan. 19. 

AttachmentSize
Goldman-stress-scenarios.pdf124.1 KB
Council-Memo.pdf60.45 KB

37 Comments on this post:

By: producer2 on 1/14/10 at 2:48

ok Joey, I give, where in the memo does it actually give the information you are reporting on? Also are you unaware that there is a $40 million dollar reserve that gets tapped BEFORE the General Fund AND a 10% cushion built into the numbers? I think that is what you should be referring to not the General Fund. So you are correct in your assumption that at 90% there is no shortage since we have established that there is a 10% cushion. Your observation 8 years of using the RESERVE fund is also correct. What you failed to report is that Nashville would have to record 35% less business than it CURRENTLY does each year in order to deplete the reserve. I am sure there are worse scenarios, why didn't you report on how tragic it would be if no one came and not one single hotel room was booked anywhere in Davidson Co.? That scenario would create a need to tap into the General Fund after only 1 year as you would deplete the reserve fund right off the bat.

By the way the reserve fund is already figured into the total cost of the bonds. Did you not attend the meeting in Council Chambers this week?

By: JeffF on 1/14/10 at 2:48

Convention Center Not Living Up to Lofty Goals
Declining Attendance Limits Economic Impact
http://tinyurl.com/2jvt52

Accommodations tax: Vanishing act
http://tinyurl.com/yad52z5

Cities Chase Ghost Conventioneers in Space Race: Chart of Day
http://tinyurl.com/malpdo

Raleigh Convention Center in red after first year
http://tinyurl.com/ye72x3r

Risk and Reality in Public Headquarters Hotel Development
http://tinyurl.com/yaqnz7y

Many of these other cities' examples are from prior to the current downtown. They just got worse after that. Baltimore now projects that they will shoot through their buffer withing three years instead of 15.

Consultant admits error on Music City Center study
http://tinyurl.com/ylk5x34

Recession, Sheraton a problem for hotels
Fewer bookings pose challenge in Phoenix
http://tinyurl.com/yzscmfm
The ongoing travel recession and, to some extent, city-built Sheraton in downtown Phoenix are putting pressure on central Phoenix hotels, some hotel owners say.
Tourists are traveling less and spending less, dampening the travel boom that hotel owners hoped would follow last year's completion of the Phoenix Convention Center's $600 million expansion.

Convention center losses weighing on Schaumburg
http://tinyurl.com/yjxj3cw

Unconventional Thinking
Why cities shouldn’t buy into the convention center economy
http://tinyurl.com/m3qvf5

By: NewYorker1 on 1/14/10 at 3:05

Isn't the general fund there to spend on public projects anyway? At few extra hundred dollars added to property taxes isn't going to hurt anybody. Increase property taxes and build it. There, problem solved. What's next?

By: producer2 on 1/14/10 at 3:06

I knew those threads would come out sooner or later. Did you guys make sure to buy Joey a big Steak?

By: morpheus120 on 1/14/10 at 3:07

If the Goldman Sachs report is so great, why is the Mayor only releasing it HOURS before the budget and finance committee is supposed to vote?

I call bulls**t and so should the Council.

By: JohnGalt on 1/14/10 at 3:09

"Metro Finance Director Richard Riebeling has said he doesn’t anticipate the non-tax revenue ever being used, maintaining that it’s part of the finance package only to market the bonds to investors and lower interest rates."

The bond rating agencies ought to love that quote.

By: WayneJ on 1/14/10 at 3:11

Get the car horns ready! Looks as if we're needed again!

By: producer2 on 1/14/10 at 3:12

This was in the article from your Raleigh link above:

The facility hosted 273 events in its first year, with a combined attendance of 353,041. The number of events was 6 percent above projections made last year by a New York-based consultant hired by the city, while the attendance figure was 56 percent above projections.

Now you are correct the headline did read that they were in the Red after their first year, but if you read the article it was on the operation side. As stated here in Nashville, the current CC has the same issue as do most Centers around the US. In Nashville the operating expense was fully covered by the HOT tax and no taxpayer funding was used.

Please note that attendance figures were 56% ABOVE projection and number of events was 6% ABOVE projections DURING a recession. Maybe you should read these before you post them.... but thanks for your help.

By: NewYorker1 on 1/14/10 at 3:14

What about the taxpayers that want it and don't mind paying high taxes for it? They should get their horns ready too.

By: producer2 on 1/14/10 at 3:16

This one from you DC link above:

"When making their predictions, officials figured Washington's hotels would give conventioneers discounts, making the city an attractive venue for associations of dentists, insurance agents and engineers. But hotels are so filled with tourists, lobbyists and businesspeople who are paying top rates that hotels have little reason to offer the discounts that convention planners seek."

I am not making these up folks, the hotels were so full that they could not squeeze any more conventions in. You do realize JeffF that the tax gets paid by whoever is using the room, right?

By: producer2 on 1/14/10 at 3:33

C'mon JeffF, did you have to ask someone how to respond since this is not on your list of talking points?

By: producer2 on 1/14/10 at 4:32

Joey,
I apologize, I see where the reserve fund is listed on the enclosed report. According to this, projections would have to be missed by a wide margin for 9 straight years before we got into the General Fund.
Again my apologies for missing this on the front end.

By: producer2 on 1/14/10 at 4:36

Also those payments would only last for the 8 years you wrote about, so if projections are missed at 75% the total cost from the General fund would be roughly $35 million out of the total of $600 million dollars. So non revenue taxes would make up less than 5% of the total for the life of the loan.

By: NewYorker1 on 1/14/10 at 5:08

Increase property taxes and build the center and the hotel.

By: UrbanNashvillian1 on 1/14/10 at 5:18

Producer, just how much money is it that your firm is going to make off of this deal? Or are you part of Krooked Karl's administration? I know they outed you on The Tennessean already. I guess we should do the same here. I hope it's the latter. That way, when his kickbacks get discovered, you can go and join him in jail.

And btw, why don't you actually move into Davidson County before you start injecting your thoughts into the Nashville City Paper!

We residents that actually live 3 blocks from this don't want it! Get it through your thick skull.

By: JeffF on 1/14/10 at 6:55

City officials gave $2.3 million in rental discounts on the newly minted Raleigh Convention Center through 2023 and $167,000 in taxpayer-funded subsidies this year to attract companies and organizations, public records show.
The city also booked at least 10 groups for free, among them RBC Centura Bank, and another dozen organizations for one dollar each.
Raleigh is the posterchild for facilities that book local groups in order to increase attendance figures. Their largest attendance figures come from multiple meetings from North Carolina State that carried zero rooms. They were moved to the new center from a still operating center. Zero net gain. Also generating big attendance for the center, the Governors Inauguration Ball, a Antiques Roadshow stop, and a Poultry convention of 700 that would have fit in previous facilities.

Also not mentioned, the new center has netted a gigantic gain of 1%. The studies that got the center started promised an increase of 50% or more. The consultant report mentioned was a redo that came out during the construction process. Sort of what happened here where your 30,000 new jobs turned into 1,500 and 300,000 new visitors turned into 100,000. The new strategy Producer is to release revised projections after approval and compare results to those instead of the pie in the sky from the debate period. Goldman Sachs and HVS have been doing that for a couple of weeks now and continue to temper expectations without being too upfront with the realities of the business.

By: producer2 on 1/14/10 at 7:23

JeffF,
You said they failed to meet projections. Now you want to change the story because the article itself showed you to be lying? Nice deflecto, did you get that from your handlers?

By: JeffF on 1/14/10 at 8:35

they did not meet the projections they used to justify their construction. they used locals not using hotels to meet the pre-opening revised numbers. What was left out until the September report was they missed their hotel room nights by 65%! They pushed the meeting and attendance numbers (something you previously was not important in the meetings industry) and buried the discount and room night numbers.

Oh yeah, they are rifling through their debt reserves which were already depleted by a $40 million overrun. The reserves will be used on the debt and the operating losses.

I forgot, tell me again where the money for the acknowledged operating losses will come from. I hope that they aren't coming from the debt reserves because there are some people now thinking it will be busy meeting the tax revenue shortages because of Goldman Sach's numbers.

The slot machine is turning but it still hasn't paid off for Nashvillians.

By: JeffF on 1/14/10 at 8:37

BTW what you want to bet that S&P will follow Fitch on downgrading Metro debt because of this? Seems they don't view this as revenue bonds either since they added it to general obligation bonds.More evidence for the court case.

By: idgaf on 1/14/10 at 11:49

Dean is as stubborn as barry.

By: idgaf on 1/14/10 at 11:49

or arrogant

By: bfra on 1/15/10 at 8:38

pod2 - How much of YOUR money are you putting into this white elephant?

By: producer2 on 1/15/10 at 8:42

I am sure it was not reported because they were hiding information. the media does this all the time! lol

By: willtw on 1/15/10 at 8:44

Interesting responders here.....one in the business and one calling for more taxes to pay for this project....I ask again, who directly benefits from such a project? And based upon what I read, a LOT of failures have occurred in troubled financial times to cities PROJECTING big convention meeting revenues which do not materialize! Why not have a public vote on the project?

By: producer2 on 1/15/10 at 8:44

JeffF,
You took the link down? WOW what a chicken s**t you are. Getting your hat handed to you?

By: producer2 on 1/15/10 at 8:50

No one is calling for more taxes. Let's look at history in Nashville. The tourism Industry has never been a burden on the taxpayer and it has ALWAYS deposited money into the General Fund. Heck right now many are complaining because they might switch money around in the budget for items tourism and the dollars it generates is paying for. Scare tactics will ot work. The vote was 20-1 last night. It is not going to change by Tuesday.

JeffF put those links up yesterday to show how awful the projections are. The problem is he didn't read them first. Now not only has he disabled the links but he is making claims that cannot be substantiated to defend his position. Who is acting irresponsible now?

By: Dragon on 1/15/10 at 11:46

By: NewYorker1 on 1/14/10 at 2:14
What about the taxpayers that want it and don't mind paying high taxes for it? They should get their horns ready too.

Those who don't mind paying for it are free to make voluntary contributions. Get out your checkbook and good luck.

By: producer2 on 1/15/10 at 12:11

Dragon,
How much money have you had to loan the tourism industry over the past 3 decades?

During that same time frame how much money has tourism put into the coffers of the City to help support schools, roads, whatever Metro decides to spend those funds on?

I just wondered if you actually knew the answer to those questions.

By: Dragon on 1/15/10 at 1:33

non sequitur, producer. I merely pointed out to NY1 there is nothing stopping him from helping to pay for the MCC if he supports it.

By: willtw on 1/15/10 at 4:15

New Yorker 1 said he was not averse to paying more taxes to build the center...that I wehat I am referring too above mentioned one wanting or agreeing to taxes....It is interesting to note that you refer to history when it best suits your situation but when one starts to address other similiar cities who have built large meeting facilities, the subject becomes mute! Many of us are from Nashville, born and riased here...we know Nashville from a half century or longer. What I am saying is, this very large investment in structure, using the public dole as guarantor needs to be voted on by the taxpers of Davidson County! BTW, I am a taxpayer NOT party to either side of the issue. A LOT of people are asking questions about this large an expenditure in these not so good times and with budget slashing left and right by state and local governments, it would be nice to have a little say in case our taxes balloon up.......

By: producer2 on 1/15/10 at 4:33

You speak to my point. You are saying folks are talking about this with the prospect of budget slashing and in case your property taxes go up. the fact remains that Metro is not taking any funds out of property tax revenue streams or any other General Fund to facilitate this project. There is a backstop attached to non revenue funds IF there is a scenario where the funding from hotel taxes, etc. do not meet demand. This is only done in order to get a better interest rate on the bonds and save the city literally millions of dollars in interest payments. The methodology used to project the revenues comes from the historic booking pattern and actual room nights used over the course of the last three years in Nashville. They are not pulling some number out of the sky, they are using historical figures of true revenue generated to make their assumptions going forward. This includes at the very least 2008 when the economy was not in the best of shape. these figures also do not include either an anchor hotel or the Medical Mart both of which have a high probability of happening and will increase the tax revenues.

There is no pot of money lying around. And if this project were to be stopped then the additional 1% and $2 per room night fee would, by law, go away when all debts were paid. You could try and enact new legislation to tax visitors more in order to pay for some of the items you have listed, but again historically the legislature AND Metro have never approved any visitor funds for projects outside the scope of tourism.

Simple historical facts, that is why we use them.

By: idgaf on 1/16/10 at 5:21

Dean said it wouldn't be built if it put the taxpayers at risk so he should keep his word.

It' that simple. He was sold a bill of (bad) goods now instead of returning it he wants to dump it on us.

Then again I have been around here long enough to realize this was the strategy from the very begining. Just like they "did us" with the garbage burner and the Coliseum.

They do it to us slow and easy so we don't scream to loud.

By: idgaf on 1/16/10 at 10:32

Lets see 32 posts and 13 of them are procurers opps producers. Think he has a stake in this boondoggle?

By: producer2 on 1/16/10 at 10:35

It's over jdgaf, let it go.

By: producer2 on 1/16/10 at 10:36

btw , 6 were from JeffF and maybe if we did a word count he had more .....

By: DustyU on 1/16/10 at 11:45

P2 - a couple minor points - you keep saying if we don't build the revenue stream will go away. We both know that no Dem politician is going to let money get away without spending it on something else! Yes it will require passing an amendment or 2. How many reports have been produced on this - 5 so far? Each one with diferent numbers - first couple projecting that a companion hotel is essential for success then after that fell through for the moment they came out with rosy numbers that implied the hotel wasn't that important anyway. Now that they've won the political rounds more realistic numbers are appearing.

All I can say is that figures lie and liars figure.
Dean will get this memorial boondoggle to himself.

By: JeffF on 1/16/10 at 6:10

Tiny URL expired those links, don't know why. I have hundreds more but thought it would be beneficial to the dim and poorly educated (meeting planners and PR folks) to make the links shorter. Wow Producer you really have to read up on this internet thing. It is the technology that has decimated the meetings and travel industry the last decade and a half.

Really, you think I have control over TinyURL? Sad, so very sad.

Tell you what, I will post the actual URL for every news story for every under performing convention center next week. Now you can extract a paragraph here and ad paragraph there from quoted from your compatriots in the other cities, but that would be a dishonest portrayal of the spirit of those news stories.

Raleigh got caught cheating, ignoring the "most important" (Producers words
) statistic, room nights, and gave away meetings hand over fist to local people to increase the number of meetings and attendance. This is something Dr Sanders (Harvard Phd) said is standard operating procedures for convention centers desperate to save face with the elected officials who suddenly find themselves making budget allocations to a center that was supposed to be a big success.

Lies can only go so far before the real numbers start coming in. Lies such as "the center will be paid for by its users" and "this will create 30,000 new jobs","we have turned away meetings because the current center is too small". "the previous center was not paid for with any taxpayer money", "the convention center turned around Broadway", "tourism is the second largest industry in Nashville", "locals will do not pay the taxes", "hotel taxes will more than double once we get this built", and finally "businesses in West End and Jefferson Street would not exist without the convention industry so it makes sense for them to be in TDZ".