Analysis: Center of attention

Monday, April 20, 2009 at 1:36am
convention_center.jpg
Many elected officials and taxpayers are concerned more about how a new convention center will be paid for rather than how it looks. Renderings of the proposed facility were released last week.

If you believe cities need convention centers, then Nashville needs a new one. Even the most outspoken skeptics of the combined $1 billion Music City Center project will admit to that.

Inadequate space at the current Nashville Convention Center has led to untold millions of dollars worth of lost revenues from the 297 conventions that took their business elsewhere, according to figures from the Nashville Convention & Visitors Bureau.

Now, no one questions Nashville’s status as a destination city or the value of the reported $4 billion tourists bring to the local economy each year. But when it comes to the $635 million Music City Center and its attached public-private hotel of unknown cost, there are plenty of questions coming from a vocal minority of Council members who feel tugged along by Mayor Karl Dean and his administration’s new step-by-step approach.

As recently as two months ago, one of Dean’s top aides said the expectation was that a financing deal for the convention center would be presented to Council this spring.

In place of a comprehensive package that includes details of how the project will be financed, Council instead will vote in the coming weeks on legislation to provide the Metro Development and Housing Agency with $75 million worth of tourism taxes, along with condemnation powers, to start buying property south of Broadway where the center would be built.

The administration now claims the ‘step-by-step’ approach is the best way to go. It also contends the vote on land acquisition is not the definitive vote on approving the center.

On that point, some Metro Council members disagree.

“If we’re going to spend $75 million of taxpayer money, we aren’t doing it to speculate on land,” District 23 Councilwoman Emily Evans said. “We’re doing it to build a convention center.”

To be sure, the legislation approving the land acquisition includes a preamble stating Council will approve building a new convention center. That leads Metro Council attorney Jon Cooper to provide the following analysis on the resolution:

“Although this resolution and the companion ordinance authorizing the acquisition of the property are not the final authorization for the construction of a convention center, the council office would point out that acquiring the property and then deciding not to approve the eventual financing for the construction of the convention center would raise several procedural and legal issues.”

The analysis goes on to point out the state enabling legislation, which allowed Metro Council to create a series of tourism taxes last year, says those revenues may only be used for a convention center.

“Thus, once the property is acquired, it is doubtful that the property could be used for another purpose while the debt is outstanding, and that any sale of the property would have to be applied towards the debt service,” the analysis states.

Down with TDZ?

Consider for a moment city businesses The Mellow Mushroom on 21st Avenue, the Farmer’s Market off Jefferson Street, the East Nashville U-Haul, the Krystal on Charlotte Avenue. They are but a few of the properties Metro believes will benefit from Music City Center.

How would that happen?

Well, earlier this year, Metro Council approved the creation of a massive Tourism Development Zone (TDZ), basically a circle with a 3-mile radius around the proposed convention center site. The TDZ works a lot like a tax increment financing area. It sets a baseline year, in this case 2008, and then allows Metro to collect all the incremental sales tax increases and put those revenues into paying back the debt on the Music City Center.

MDHA Director Phil Ryan calls the TDZ “a rough circle,” but District 22 Councilman Eric Crafton isn’t buying it.

“There’s no way anything on Jefferson Street benefits from a new Convention Center,” Crafton said.

He believes the TDZ is so huge — it encompasses all of downtown, goes across the river into East Nashville, heads west across Interstate 40/65 to include bars and restaurants on South Street, then works its way in northeasterly chunks all the way up to Jefferson Street — that Metro will never see the benefit of increased sales tax revenues over the next 30 years.

To Crafton, Metro will need those incremental sales tax increases, but he says the TDZ should be shrunk to include only the businesses in close proximity to Music City Center.

“It can’t support itself and it's destined to benefit a few wealthy people in town to help them get wealthier while the taxpayer foots the bill once again,” he said. “I’m sick of it, and I’m going to point out where things are correct and I’m going to point out where things are bad.

“In a year when we’re considering laying off cops and teachers and fire[fighters], we don’t need to be giving away millions in sales tax revenues for the next 30 years.”

Land acquisition time frame questioned

Exactly how much Metro will be “giving away” is unclear, because MDHA and Metro Finance have still not released sales tax projections. The state Office of Finance and Administration must certify the TDZ and it has not yet received the final application from Metro.

On top of that, there is a two- to three-month approval process once the state receives the application. Furthermore, the state has discretion to remove properties it does not feel will benefit from convention center-driven business.

“This whole thing seems hair-brained,” Crafton said. “And people need to know about it.”

Even if the Council approves the land acquisition phase — and the mood among members is there are more than 21 of them lined up to vote with the administration — questions remain surrounding the land acquisition process.

Ryan said last week MDHA would have the necessary 17 acres of downtown property purchased by the end of the summer. That seems ambitious to Council members who believe it will take more like nine months to a year to buy the property.

“Having gone through condemnation proceedings before, three months seems pretty fast,” said District 24 Councilman Jason Holleman, who is the city attorney for Mt. Juliet.

The Greyhound bus station and Rocketown, a youth ministries facility, are among the properties in the center’s imprint.

Then there’s the issue of operating costs.

The current Nashville Convention Center receives about $1 million annually from Metro for operations. The Music City Center would be more than three times its size, yet it was stated at last week’s meeting it would not operate with a loss. An attached parking garage was referred to as a magic bullet that will essentially lead to an operating profit, according to projections provided by Johnson Consulting.

“Most of these convention centers receive an operating loss, yet we’re projecting to make money because of the parking garage,” At-large Councilman Jerry Maynard said.

Convention Center advocates, including the Dean administration, are asking for patience and insist the tourism taxes and the TDZ revenues will be sufficient to pay for the center. The CVB has already sold 100,000 room nights and is confident it can sell 1 million before the new center’s proposed 2013 opening.

But the risk still remains that Metro Council could approve land acquisition and then be presented with a financing deal it can’t stomach. What happens then, if the land is already bought, if the SoBro buildings are demolished, and there's no palatable financing deal from Dean’s administration?

“If they come back and say, ‘You have to do this, you’ve already bought the land,’ then people are going to be angry,” Evans said. “To say the least.”

21 Comments on this post:

By: frank brown on 4/20/09 at 6:43

A Convention Center is not needed. Metro at this time. We already have too much tax money directed at entertaining the people from adjacent counties (ice hockey team) and educating the uneducable from the underclass.

By: producer2 on 4/20/09 at 6:48

Good Morning Everyone!
Ready for another day of the same folks with the same talking points? Could be similar to this article which has bascially run everyday for a month. Give it a rest Nate, try something new..... oh and I chuckle now that Eric Crafton is all of a sudden a credible spokesperson. Is this the same guy you roasted a mere month or two ago? The one who out and out lied to his constiuents and the citizens of Davidson County for his own gain. What we won't do to sell a few papers....

By: JeffF on 4/20/09 at 7:06

Nate, thank you for finally digging deeper on this. Although I do disagree with the theory of almost everyone believing the current facility is too small. That is propaganda that has been used in too many cities.

By: JeffF on 4/20/09 at 7:08

You upset that someone in the press has finally quit writing the ra-ra articles Producer? You have had three years of fawning from the press in Nashville. Now it is maybe time to see in print what the rest of us already know.

May I suggest you stick with Gail Kerr. She seems to be still under the spell.

By: JeffF on 4/20/09 at 7:19

Show us some real hard numbers proponents. Show us the amount of money being used to build and operate then show us the money that will come in. Personally I have a hard time believing that a center that will discount meeting space until its is free and work out deals for hotels to do the same will suddenly keep the price constant on parking. Of course this could mean that there is a legitimate plan in place to inflate attendance numbers with shows instead of meetings. These would use parking but would not be the economic impact events of out-of-town conventions and meetings. Conventions will put their people into downtown hotels so there will not be a lot of garage usage.

The garage is a new smokescreen being thrown up to distract from the inadequacies of the hotel/motel tax and rental car tax. Now we hear that the state is not obligated to include every business into the tax zone?

I have an idea. LEts get the state to change the tie-up for the tourism taxes. Instead of "convention center over $400,000,000.00" it can be changes to "council's number one priority". Let the council members be put on record of saying the convention center in Metro's number one priority.

By: JeffF on 4/20/09 at 7:41

by the way Nate, the zone will be somewhere between 7 and 9 square miles, not 3 square miles. 3 mile diameter is 1.5 mile radius (square that) times pi (3.14......). Of course many would have us believe that the UHaul and Vanderbilt area businesses (including the hospital) would not exist without the convention industry. They are just that important.

By: producer2 on 4/20/09 at 8:00

like I said, same old, same old. This is not some new jounalistic revalation JeffF, this has been discussed ad nausem for several days now. I would think we would wait to see what the answers are in the very near future before we just start all the hating again. My onlyu issue with the article (or analysis as it is called today) is that we are using Crafton as the spokesperson. What kind of credibility does he actually have?
Have a great day...

By: JeffF on 4/20/09 at 8:15

Would you not be more comfortable speaking to the people who agree with you Producer? Go hang out with the folks on the ra-ra web page. The people with a holistic view of projects such as this will discuss the issues and the problems and the dollars.

Your group over there can look at drawings and square footage estimates and get excited.

I am thrilled that the whole picture is finally coming into print. I would like to think it would have happened without these reader comments. Judging by what happens in other cities, the media's convention center regret usually comes about well after the giant black hole is built. I have linked to many of those regret articles and opinion pieces in the last year.

By the way I am more confident than ever that a referendum is coming. Don't forget to insult the electorate for their shortsightedness. I am guessing the mayor is going to plan on hiding the debt as MDHA debt, hoping to confuse us long enough to get the three readings in. It is a quasi-state agency but it will be backed by Metro's taxing authority payments. Concerned citizens may have to get a court order to block the contract until the G.O. debt referendum can occur. Whatever, I am up for it.

The turning of heads in the media seems to have pushed a button with you Produce? Crafton is just an excuse for you to get upset.

By: Richard_Lawson on 4/20/09 at 9:55

You guys are funny. The mistake that continues being made by politicians and critics alike is that the tax dollars going toward the center is from our pockets. It's from the pockets of the visitors. A fund as already been building and some of the initial soft costs have been covered by the fund.

By: producer2 on 4/20/09 at 10:03

Richard,
They have already made up their minds that even if it fell below expectations somehow 100% of the funds would come out of their pockets. No one wants to admit that these taxes have paid for this industry locally and around the world for decades. JeffF will come up with about 4 expamples out of 1000 that have not done as well as projected and proclaim that it is all gloom and doom. Nohing new here, same story, different day...

By: JeffF on 4/20/09 at 11:25

I have rented two cars this year and have rented hotel rooms for family in town for a wedding. Obviously I am not the only resident to have been caught in the trap of "visitor only" taxes. My employer has paid for about 75 room nights for people coming into town to work on various projects. We had to pay those taxes although it was not convention oriented.

Even with my and my employer's more than generous contributions and the generous contributions of the suckers who elect to stay in Hermitage instead of Mt Juliet while passing through town, it is beginning to look unlikely that this revenue will indeed cover even the principal repayment let alone the guaranteed operating losses on two centers, the hotel (another loser if other cities history is an indication), and the laughable garage-as-a-profit-center. All they are doing is rearranging the furniture until the mortgage comes due. Just like the state did a few years ago when they "balanced the budget" by overestimating the revenue for the year.

I can do better then 4 out of 1000. Since there are not 4 out of a thousand examples of centers meeting promised expectations I will challenge you Produce to name 4 that have met expectations from the consultant's report. Until then here is the list of doom:

Atlanta
St Louis
Chicago
Dallas
Houston
Miami
Boston
Detroit
Denver
Phoenix
Memphis
Los Angeles
Pasadena
Orlando/Orange County
Louisville
Indianapolis
New Orleans
Seattle
Salt Lake City
Raleigh
Washington D.C.
New York
Portland
Honolulu
Las Vegas (only for the last 2 years)
San Diego (suddenly is losing business and wants to build bigger in order to profit again)

There are a lot of brand names on that list. Here are the particularly appalling failures in small communities:
Knoxville
Myrtle Beach
Albany
Miami Beach

Keep in mind raw number look okay for these centers, but one has to compare before and after information. Each was promised huge increases of economic impact, most got a coupel of percentage points in additional visitors (no doublt counting the car shows and boat shows with no actual tourism going on). Many actually saw fewer attendees. Each city was approved by commissions/boards after being told of a handful of additional booking already in place and waiting the new building.

I was fascinated by an article in the Dallas Observer this morning. The mayor there is fighting a Quiotix battel for a publically built and financed convention hotel. His arguments involved "facts" that the convention center was losing money because of a lack of a super duper hotel (the kind that was foreclosed on in St Louis and Houston can't pay anyone to buy). A reporter for the Observer discovered a suppressed analysis commissioned by the city that shows the convention center would LOSE more money with the additional spending on the hotel. The report shows the center being off the taxpayer dole without the hotel but on it for life on it.

http://blogs.dallasobserver.com/unfairpark/2009/04/city-commissioned_study_says_d.php

This sort of makes a fair arguement in relation to our center. A paid for center like the one we have still attracts meetings (a lot of them?) but does not attract the "right meetings" apparently. So we will take those meetings we have now, flush them and fish for the big fish. We will gain about a billion dollars in debt and use every cent of the revenue stream in place to do it. There is no guarantee (actually little expectation) of actually wresting these mythical big meetings away the city they usually go for (Las Vegas, Orlando, Chicago, San Diego). Tel me again, when did continuing the status quo on the convention business become equivalent to abandoning the industry? Not every city should or even can be a player in every level of business. If the convention center currently is the valuable economic engine why toss it aside. There will always be more meetings of that size then of the mega size right? Supposedly it has been said that is in not a burden to anyone of us in Nashville? Who's to say that the next one will not be a burden in 10 years when the same 30 cities have built even bigger and the crying begins in tourism circles to save our brand?

Step to the aside and let this industry eat itself. Then step in with our beautiful paid-for building that is not a burden on us or visitors.

By: producer2 on 4/20/09 at 11:40

like I said same story. Thanks to you and your employer, you have contributed about $500 to the $100 million a year in tax revenue generated by visitors. Hope it did not break the bank. Also I wonder where your list was generated from. I like the way you say meets consultants expectaions but never says the tourism industry in these cities is losing money. I often wonder even in my own job if I am making loads of money for my employer but only making 90% of my stated goal, then am I a failure? Don't think so. All the other stuff is just rehashed a thousand times over. Does not make it right, just makes it repetitive...

By: JeffF on 4/20/09 at 1:03

Pie-in-the-sky estimates are used to justify exorbitant amounts of capital spending. When those huge glowing numbers are not met then there is a hole not being paid for.

It would be great to see the convention centers meet 90% of new attendance. Since the late 90's these centers have failed to meet the 10% threshold in promised growth. You figure if you are going to increase costs by 100% that your would want to increase actual revenue by some number close to that. But Atlanta will have to pay for their 100% with their 0.5% increase is economic benefit.

Most of the success stories are available in that wonderful Brooking report and all those wonderful, factual news stories I have been linking.

Hey even Knoxville was promised success with 100,00 new room nights. Where have I heard that number before? Those room nights came and went and even the mayor of that city laughs at the absurdity of investing in an industry on the way out of existence.

You know what, there are cities that have the capability of hosting more horse drawn wagons. We should have a program for increasing the number of hitching posts in downtown. We can't fall behind in the race to host more horses. To not do so would hurt our brand.

By: Anna3 on 4/20/09 at 1:50

Producer...How will you explain the massive "Give Away" that Dean's going to facilitate for The Peabody Hotel Group in order for the "Private" part of the "Public - Private" Hotel deal to be something that they can't refuse. Three years ago...even Purcell turned down the Peabody Group because they wanted the "Moon" to take the deal....and now that EVERY OTHER major hotel firm (Read....Hilton, Marriott, Starwood, IHG, and all the big private developers) won't touch this deal. We are SUCKERS for Dean and all of this "Its for your own good" tripe. This project...benefits only a few big developers, gig hotels, and the Chamber of Commerce insiders. Crafton's correct....if this is so good...why all the secrecy...and wheres all the bidders? If its all just in the preparation phase, why is a large construction firm from Chicago moving in to the "Old Church" at 4th & Korean Veterans Blvd. in the next few weeks. The Chicago Firm is telling everyone that they have been awarded the Construction Contract! Has the Metero Council even voted on this yet. Crafton is right on this..but expect the Administration to use their press shills to attack him and Evans alomost daily. Its time for new leadership...its time for a new mayor that puts working, taxpaying folks first. Its time for Dean to go!

By: Anna3 on 4/20/09 at 1:54

PS - The damn thing looks like a "Double - Wide"!!!!!

By: producer2 on 4/20/09 at 2:03

JeffF,
And your figures come from? Again with Atlanta you are talking about an expansion of an exisiting faciity which was already larger than the one Nashville wants to build. I agree they overbuilt in order to reach another 10% of available business. How does that compare to Nashville trying to grow enough to reach 80% of the avaiable business from the current 20% they can accomodate. I would think that 60% spread makes far more sense than the Atlanta model. Until you are willing to talk apples to apples none of your stories will matter. If you want to continue comparing the tourism industry in Knowxville to the one in Nashville few will take you seriously.

Anna3
Your info must be psychic because you ae the only one who knows it! All of those hotels you mentioned (Marriott, starwood, etc.) have been all over the city trying to land the deal as the anchor hotel. Bill Marriott personally has been here on more than one occasion. The final announcement on who has been chosen will be made in the next month or so and until then no one has been awarded anything. There is no secrecy here, requests for bids were made and bids were submitted. From all of those bids contracts will be awarded. It is all very transparent, you just have to want to see it and believe it first.

By: producer2 on 4/20/09 at 2:12

here is a rebuttal of your precious Brooking Institute article from 2005:
http://www.hotel-online.com/News/PR2005_2nd/May05_ConventionBiz.html

By: JeffF on 4/20/09 at 2:39

Knoxville- 500,000 sq feet center $168,000,000.00
Nashville-1,200,000 sq feet center $650,000,000.00

per sq foot estimates:
Knoxville: $336
Nashville: $541.67

neither one of these includes land, clearing, or parking facilities so that is no argument. Hmm,. Knoxville went on the cheap and is still losing money hand over fist. Nashville is apparently going to be a success by spending increasing their expenses that much more.

I know they probably do not stress going out on your own and researching at McNeely Pigot & Fox, Producer but it is okay to deviate from the script and think for yourself. Look at the number, forget what your employers are telling you and do what is best for Nashville. Spend the money on stuff government is supposed to be doing. Just because the tourism overlords currently own the money collected in our names does not mean it should stay that way.

Who owns the money collected by the Metro Nashville? Us or the the downtown tourism interests? Council, create a priority list of what really is important and is the job of government and stick to it.

By: JeffF on 4/20/09 at 2:49

hey you linked that rebuttal before Producer. A industry fluff piece does not contradict a scholarly research paper that was in the works for 4 years. He researched an entire industry and included all data, good and bad. The meetings industry henchmen took selected statistics and tried debunking a thorough an unbiased scientific work. If the "rebuttal" was indeed worth its ink then it would be the go-to research piece on this industry. Instead, it is ignored and good, ole truthful Bernie's work is trotted out and subsequently ignored until it is too late.

I really love the dated rebuttals portion about Brookings usage of dated information because it does not show the turn around. Keeping in mind the consultants wrote this in 2005 and that industry turnaround still has not showed up yet. The argument that the square footage boom is overstated while leaving out that it is still bigger than the realities of the market, priceless.

Of course seeing that it was written by two of the consultants accused of never saying no to a paying convention center client is good as well. I wonder if they ever tire of writing the same phrase over and over again (Blank city can now only host 20% of the meetings, a new center will allow Blank city to host 80% of the meetings).

Elected officials in a bunch of cities are have been left wondering, "why did I believe them instead of the guy with the Phd?"

I am still waiting for one of the many observations in the Brooking Institute to be found incorrect in someone scientific analysis/study of the industry?

Did I mention already that a Dallas study found convention center hotel proponents were lying? Once again Brooking right, tourism leaches wrong.

By: JeffF on 4/20/09 at 3:05

THOMAS HAZINSKI is the managing director of HVS Convention, Sports & Entertainment Facilities Consulting in Chicago, Illinois. His consulting practice is dedicated to the market and financial analysis of public assembly facilities.

HANS DETLEFSEN is a Senior Manager at HVS Convention, Sports & Entertainment Facilities Consulting in Chicago. He consults for public and private clients seeking to plan, develop, and operate recreational, entertainment, and convention facilities, and his assignments primarily include assessing the market and financial feasibility of these projects.

And on the other side:

Heywood T. Sanders Professor, University of Texas, Ph.D., Harvard University. Fellow, Brookings Institute
Urban Renewal, Community Development Policies, Politics of Urban Infrastructure

Seems that Sanders has been brought into at least three cities to rebut the reports issued by HVS (the company that never says no on any consulting report). The leader of a Dallas committee denied access to Sanders at one meeting where another council person invited him. Rather than letting him speak the chairman adjoined the meeting and stormed out. Eventually the chairman got the offending committee member removed and never had to hear Mr. Sanders speak or red his research.

By: producer2 on 4/20/09 at 4:04

You mean Prof. Sanders was PAID to come in and speak. And he is Professor
Department of Public Administrationat University of Texas at San Antonio, not the same as UT in Austin but a fine school none the less. Both men have a plethora of college knowledge. The good professor wrote a book entitled The Politics of Urban Development. You can't find a flaw inscientific proof of anything that is not scientfically proven to begin with. My guess is he has as much to gain from his perspective as Mr. Hazinski from his. I love it when only your side has the truth. there are always two sides to every story, I just pointed out mine...