Friday, November 13, 2009

One Way to Make Music City Center Revenue Numbers Work: Double Them

Posted By on Fri, Nov 13, 2009 at 12:17 PM

click to enlarge MCCFootprintCR.jpg
A new analysis of revenues and expenses for the proposed convention center from hospitality consulting firm HVS is due next week, and its numbers will inform judgments of the financing package that the mayor will propose soon after. One key thing to look for in the HVS report will be its estimate of a key revenue source known as the "sales tax redirect." It captures sales tax generated by economic activity at the Music City Center "campus," defined in the last consultants' report as including the convention center itself along with "the planned 1,000-room headquarters hotel and a second convention hotel." This "redirect" revenue merits close scrutiny because it has been a mysteriously moving target--and the movement has been dramatically upward. We see this in a simple comparison of the two most recent analyses by consultants hired by the city. In March 2007, KPMG forecast the redirect revenue at $7.5 million in 2020 and $12.4 million in 2040. In August 2009, C.H. Johnson Consulting estimated redirect revenue at $14 million in 2020 and $23.2 million in 2040. Holy multiplier, Batman! (A chart showing the numbers directly captured from the two consultants' reports appears after the jump.) What accounts for this near-doubling of the sales tax redirect forecast in less than two-and-a-half years? We posed this question to city finance director Rich Riebeling, who said he "can't explain the differing amounts" without "going back and talking with them about the underlying assumptions." We'll find out next week if the new redirect revenue estimates from HVS look more like the 2007 numbers or the inexplicably higher 2009 numbers. And some further questions: What is the "second convention hotel" to which the Johnson report referred in defining the MCC campus? Is it speculative revenue from a future hotel, or is it a redirected revenue stream from an existing hotel such as the Renaissance, which would mean taking money that presently funds other things? What proportion of the sales tax redirect estimate is drawn from the "second hotel"? (Neither of the two previous consultants' reports spelled out those assumptions or breakdowns.) The talk around town is that a new headquarters hotel will have substantially fewer than 1,000 rooms, so will new forecasts from HVS reflect that diminished hotel scale expectation with a corresponding decrease in estimated revenue? And lastly, if the mayor doesn't put a hotel on the table at the same time that financing for the convention center is proposed, as some recent reports have suggested, then how should we evaluate a financing package that relies significantly on the sales tax redirect, which presumably relies in turn on sales tax revenue from a hotel that is not yet on the table?
click to enlarge MCCRedirect.jpg

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