Wednesday, December 2, 2009

Music City Center Financing to Be Unveiled Thursday; Will the Numbers Add Up?

Posted By on Wed, Dec 2, 2009 at 12:45 PM

click to enlarge MCC01_229x110.jpg
Here are a few things to watch for when the long-awaited financing plan for a new convention center is finally revealed tomorrow by the mayor's office.

First and foremost, what's the plan for a convention headquarters hotel? Although Mayor Dean insisted just two weeks ago that "there will certainly be a hotel," it seems doubtful that hotel financing will be part of the package unveiled tomorrow, especially since no concrete hotel feasibility study has yet been made public. An absent or deferred hotel project creates a bit of a conundrum because, according to consultants' analyses (see chart after the jump), the revenue stream for financing the convention center relies significantly on sales tax revenue thrown off by a new hotel.

The most recent analysis of revenue is by a consulting firm called HVS, which presented a summary of its findings in a slide presentation last month. City finance director Rich Riebeling promised that Metro Council and the public would get their hands on the full HVS report before Thanksgiving, but that still hasn't happened.

The chart below shows revenue projections during the sixth year of MCC operation as conjured up in each of the three consultants' analyses that the city has commissioned. Although a new convention headquarters hotel would yield room tax just like every other hotel in the county, the more significant hotel-generated dollars take the form of sales tax contained within the "sales tax redirect" category. This "redirect" captures sales tax generated by the MCC campus as a whole, which includes the center itself (operations and retail), parking and a new hotel.
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We asked Riebeling last month why that redirect number jumped so dramatically (doubling!) in the interval from the 2007 analysis to the first 2009 analysis. What had changed other than, oh, say, the largest economic downturn in half a century? Riebeling said he didn't know but offered to look into it. We're still waiting for an answer.

An explanation for the drop in that category of anticipated revenue from the first 2009 analysis to the most recent one is a bit easier to fathom: The C.H. Johnson study assumed a 1,000-room hotel, while the HVS study assumed a smaller 750-room hotel. HVS estimates that the hotel will account for a bit over two-thirds ($6.3 million) of the $9 million in revenue from sales tax redirect in 2018.

If $6 million is the revenue hit to a hotel-free financing stream, can the numbers work without a hotel? Astute viewers will notice in the chart the marked escalation since 2007 in estimates of tourist development zone (TDZ) revenue. In the absence of a hotel, will the mayor's office ask us to buy into the recently redrawn TDZ boundaries as a basis for such a vast expansion of this form of revenue? (The C.H. Johnson TDZ number is low, by the way, because it accounts for TDZ dollars that get sucked off by Gaylord; it isn't clear if the newer HVS study does likewise since we don't yet have the actual full report.)

As a more general matter, the newest (HVS) analysis in the top row of the chart shows that a very large portion of the money ($19 million out of $51 million total) comes from the revenue categories that are the most difficult to predict. Estimates of sales tax redirect are highly speculative since they are based on unspecified occupancy assumptions and subject to discounts and deals that the city might cut with trade associations to attract their convention business. As for TDZ revenue estimates, the consultants at HVS in their recent slide show called the tax growth rate differential that forms the basis for TDZ revenue "nearly impossible to predict in any given year."

The mayor and his finance chief, no doubt, will tell us tomorrow that the project is highly feasible on the revenue side and affordable on the cost and financing side. It's time to take a close look and ask some hard questions.

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