Friday, January 1, 2010
Measure among those that take effect today
But foes say planned convention center carries more risk and would cost nearly 12 times as much By Michael Cass • THE TENNESSEAN • January 1, 2010 As Nashville looks at building a $585 million convention center and paying off its debt with visitor revenues, supporters say believing in the project doesn't take a leap of faith. The city has already done this once, they say. Metro paid off its existing convention hall on time with hotel-motel tax revenues. The Nashville Convention Center was taken off the city's debt ledger in 2007, 20 years after it opened. "If this was the first project that we were going to the hotel-motel tax and to visitors for, one might have a little more concern," said Sam Howard, vice chairman of the Music City Center Coalition and a former chairman of the commission that oversees the existing facility. "But we've done it for 20-plus years." But critics say it makes no sense to compare Mayor Karl Dean's financing plan for the proposed building, which would cost nearly 12 times as much, to the current center. It cost about $50 million. "This is just a different deal," said Kevin Sharp, president of Nashville's Priorities, a convention center opposition group. "It's apples and oranges." Dean wants to pay off about $40 million a year in construction debt through the year 2043 with the hotel-motel tax and a series of other visitor taxes and fees. Those affect hotel rooms, rental cars and airport ground transportation. They also allow Metro to collect some of the sales tax revenues from economic development generated by the project. Metro Finance Director Rich Riebeling said the proposed tourist tax base is "much more diverse" than the one used a generation ago. If the revenues are sufficient, the city won't need to tap taxpayer funds to help pay off the debt. The city never needed to do that to pay for the Nashville Convention Center, Howard said. "This project is larger, yes," he said. "But the mechanisms for doing it are in place." To build the convention center in the mid-1980s, Metro issued $39.5 million in general-obligation bonds, said Metro Trustee Charlie Cardwell, who was the city's finance director at the time. It pledged property taxes to pay off the debt if the dedicated portion of the hotel-motel tax ever fell short, but that never happened. However, $9.75 million — about 20 percent — of the project's cost came from a federal urban development grant that didn't have to be repaid. Nashville's Priorities says on its Web site that the idea that the center was paid for entirely by tourist taxes is a "myth." While Metro wouldn't have direct federal assistance this time around, it would be able to use an economic stimulus program to lower its debt payments by about $5 million a year. If the Metro Council approves construction of a new convention hall, the city will issue revenue bonds this time around. Those don't offer as low an interest rate as general-obligation bonds, but they keep property taxes out of the picture. Instead, Metro would pledge other parts of its general fund as a backup in the event of a visitor revenue shortfall. Sharp and other critics have said that makes the project very risky for taxpayers at a time when national demand for convention space doesn't come close to matching supply. Other projects take hit Even if the proponents' projections play out, critics say, tourism attractions now being partially funded with hotel-motel taxes will need other city revenues to remain whole. Councilwoman Emily Evans said Metro borrowed against a fraction of its hotel and tourist tax base in the 1980s but is now looking at borrowing more money than is annually available to tax from tourist activity, based on hotel room rates and occupancy. For the current center, the city borrowed $39.5 million against $185 million, Evans said. It's now considering borrowing $627 million — covering construction and a debt service reserve fund — against about $460 million. 'Now we're overleveraging," Evans said. But Ron Samuels, chairman of the Music City Center Coalition, said it's highly unlikely that taxpayers will be left holding the bag. The financing package will include a series of safeguards, like the debt service reserve fund. "Any investment you make has risk associated with it, but we have a proven model that works," Samuels said. Another difference in the deals is the decision on a convention center hotel. Twenty-five years ago, Mayor Richard Fulton found private financing for a hotel before the city started building the convention center itself. "At that time, a hotel was needed to make it work," Cardwell said. "There was no secret about that." Dean hasn't been able to find private financing for a hotel but has said the city should proceed with the convention center while continuing to look for investors. Cardwell and Riebeling said downtown didn't have nearly as many hotel rooms in the 1980s as it does now.
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