Nashville council buys into convention center deal bit by bit

$80 million has been spent so far on project that hasn't been approved By Michael Cass • THE TENNESSEAN • August 31, 2009 In the past 18 months, the council has overwhelmingly approved the spending of nearly $80 million on architectural designs, consulting, public relations work and land acquisition. It has also agreed to create a separate authority to oversee the project. But the do-or-die vote on actually paying for and building the $635 million convention center hasn't come yet. In fact, it still might be more than three months away. To Metro Councilman Michael Craddock, a real estate agent, it's a familiar game plan: a seller getting a buyer to invest in a deal, bit by crucial bit. "That's a sales strategy on their part," said Craddock, who is undecided about the project. "A lot of times, people will say, 'Well, this is a lot to think about.' My response is always, 'Let's take this one step at a time.' "It's a sales pitch to acclimate you to the final yes vote." Dean's top advisers insist that's not the idea. And some council members say they're pleased to take the project in small, digestible bites. "From what I hear, this is a much longer time frame and has provisions for more council input than previous transactions that were on a large scale," said Erik Cole, incoming chairman of the Convention, Tourism and Public Entertainment Facilities Committee. Since February 2008, the Metropolitan Development and Housing Agency has used more than $16 million generated by a series of tourist-targeted taxes and fees to pay for "predevelopment activities." Most of the money has paid for designs. MDHA also has borrowed $62 million to buy land south of Sommet Center and First Baptist Church, though no purchases have been announced. To some, that's a backward approach. Councilwoman Emily Evans said it would have made more sense for the city to decide whether to build the 1.2-million-square-foot convention center before starting talks to buy the land for it. And announcing the amount of money available to buy 15.87 acres signaled to property owners what price they could demand, hurting Metro's leverage, she said. "We've given away a major negotiating tactic, which is (property owners wondering), 'How much do you have to spend on land?' " Evans said. Metro Finance Director Rich Riebeling said land costs have been included in project documents for at least a year. He said he expects property owners to try to make as much profit as they can, but the city will take them to court if it can't negotiate terms. "Our leverage is going to be that we can only pay what an appraisal shows," Riebeling said. MDHA started making offers to property owners about four weeks ago. Joe Cain, the agency's development director, said Friday that no sales have been closed yet. Contracts spark debate Money spent on the project, which had been moving along quietly, burst into public view with this month's revelation that McNeely Pigott & Fox had billed the city more than $458,000 for public relations work. MDHA's board had voted last fall to lift an initial $75,000 cap on the firm's contract. A review of contract documents shows MDHA also raised the payment limits on several other contracts. And McNeely Pigott & Fox was not the only firm charging the city well over $200 an hour at its top billing rate, a practice that critics say gives firms an incentive to pile up hours. Chicago-based C.H. Johnson Consulting Inc., for example, has two contracts with MDHA. One, for financial advice on a convention center business plan, was negotiated last year to pay a maximum of $165,000. But MDHA added more work and raised the cap to $250,000 on Aug. 7. The firm's other contract was for advice on the feasibility of a convention center hotel. That agreement had a cap of $93,500 when signed in June 2008. MDHA raised the limit to $500,000 three weeks ago. Each deal calls for the company's president, Charlie Johnson, to be paid $340 an hour. Evans said the rising costs make no sense. She said the city's general financial adviser, Dallas-based First Southwest Co., has worked on convention center hotel deals and could have given guidance on what Johnson's work would cost. Mark Sturtevant, MDHA's project manager, said it was Johnson who proposed the initial price of $93,500. Once the work began, the agency kept Johnson on for advice on selecting the hotel's developer and operator. Sturtevant said Johnson's work was "invaluable," helping bring in proposals from 10 developers and seven hotel companies. He said the consultant's hourly charge is justified. "He's well-known in the industry," Sturtevant said. Riebeling said he didn't remember anyone asking First Southwest for its opinion on the cost of hiring Johnson, saying the consultant "came with some good credentials." MDHA also raised the payment limit for Conventional Wisdom, a facility-programming firm that essentially wrote a guidebook for architects to follow on using the space inside the convention center. Ocoee, Fla.-based Conventional Wisdom's billing cap grew from $250,000 to $303,424.52 after "all kinds of value judgments" about the building's design came up, Sturtevant said. Craddock said the changes in costs raise more questions about MDHA's management. "What good is a contract if you're not going to abide by it?" he said. Sturtevant said MDHA can spend what's necessary for predevelopment activities as long as the visitor tax and fee revenues cover the costs. MDHA is not required to get council approval to amend contract spending caps. Approach is different Riebeling said he plans to present a construction financing package for the convention center and hotel to the Metro Council by the end of the year. Only one vote will be needed to approve or reject the plan. Butch Spyridon, president of the Nashville Convention & Visitors Bureau, said Dean's approach is practical. The mayor wants to open the convention center in time for meetings the bureau has booked for the spring of 2013. "The choices were the whole enchilada with little facts, or some smaller pieces to keep it moving," he said. "If we missed deadlines, we'd start to miss bookings." (Ellen Leifeld, president and publisher of The Tennessean, serves as chairman of the bureau's board of directors.) Dean's parceling of the project goes against the grain of some previous Nashville initiatives, and Evans, a retired municipal bond underwriter, said it's extremely unusual, compared with other cities' approaches. In October 1995, Mayor Phil Bredesen proposed a $292 million package to build a football stadium for the team that became the Tennessee Titans. At the same time, Bredesen asked the council to authorize architectural designs; marketing and sales of personal seat licenses; creation of a sports authority; and a lease with milestones for the NFL franchise to meet. The council ultimately approved the deal five months later, though voters got the final say in a referendum because Bredesen wanted to use $4 million a year in water and sewer funds to help pay off the debt. The city had spent about $2.5 million in an effort to get the team by that point. Dean has promised not to use property or sales tax revenues to pay for the convention center, meaning a referendum wouldn't be possible as long as those funds were not being tapped. Approval of the existing downtown convention center in the 1980s also came together in a rapid succession of votes, said Pat Nolan, a local political analyst who covered Mayor Richard Fulton's proposal as a reporter at the time. But Nolan, who later worked as an aide to Fulton, said there's nothing wrong with Dean's approach. "My impression has been that, in part, they were trying to continue to move forward on the project despite all the problems in the financial markets," he said. "There's no one way to skin the political cat here." Councilman Mike Jameson, whose district includes the convention center site, said giving council members a stake in the project is the driving force in Dean's strategy. "It paints the council into a corner where, inevitably, we're almost forced to vote for the convention center, because goodness, if we vote it down now, we've wasted $75 million," he said. But Riebeling and Deputy Mayor Greg Hinote said they couldn't imagine doing it any other way. They said the council and public have had plenty of opportunities to ask questions. "It's common sense," Riebeling said. "This is obviously a very complicated project that has a lot of different parts. To think it could be done in one vote and at one time is just naive. It just can't be done. "I'm tired of being told we're not doing it the right way. If people have a better way, they can run for mayor."