In a meeting billed as the first official question-and-answer session devoted entirely to the finance plan of the proposed Music City Center, Metro Council members Wednesday night pressed Finance Director Richard Riebeling and project leaders on what some believe are unanswered concerns attached to the $585 million project.
A finance package unveiled a week ago by Mayor Karl Dean and his administration would use a combination of six hotel taxes and fees that target tourists to pay off the estimated $40 million per year debt service for the new convention center.
Though the method intends to spare Nashvillians from footing the bill, several public organizations that rely on a portion of the city’s hotel tax — including the Adventure Science Center and Country Music Hall of Fame — could lose a total of nearly $14 million in funding.
“I guess the $64,000 question — and in this case it’s the $13.77 million question — is, do you folks have a plan to replace this money to these entities?” asked Councilman Michael Craddock.
Riebeling said the portion of the hotel tax currently designated for those public programs had been used to pay off debt on the existing Nashville Convention Center until three or four years ago. Once the city finally paid off all the center’s bonds, those funds were channeled to their current utility.
“Items that need to be funded, that we’re going to continue to fund, will be funded in next year’s budget from revenues that we have available,” Riebeling said. “When we present the budget, we will present that like we do for every other department.”
Asked by Councilman Jim Gotto if making up that $14 million means additional taxes, Riebeling said, “There’s also the concept of reducing expenditures.”
While consultant feasibility studies show revenues collected by the tourist-targeted taxes should relieve debt sufficiently, a portion of that debt would be backed by so-called “non-tax revenue,” which includes licenses, permit franchise fees, fines and penalties, among other things.
Harassed by Council members on the possibility of tapping into those revenue sources, Riebeling stressed there’s no intention ever to use them.
“They’re a back-up pledge,” Riebeling said. “We don’t anticipate any of these revenues being used to pay for the debt service. It’s there to market the bonds … and really to lower interest rates.”
Perhaps the most significant unknown of the proposal involves an adjacent convention center hotel, which Dean and his administration left out of the finance package after failing to attract a private investor.
The plan is to continue negotiations with veteran hotel development venture Phelps Portman, though the administration hasn’t ruled out asking for public financing or a public-private partnership.
After recognizing the administration’s desire to have the center and hotel open together in 2013, Councilman Jason Holleman asked project leaders to clarify the anticipated revenue streams for the public portion of a public-private hotel.
Jeff Scruggs of Goldman Sachs, the bank holding company that would underwrite the city’s bonds, said the most likely form would be for a developer to request the city to finance a portion of the hotel’s construction, a model known as “gap financing.”
“The whole idea would be, in the best of all scenarios, that revenues that you’re currently not collecting would be earmarked and dedicated to potentially pay those bonds, but of course there can’t be a guarantee,” Scruggs said.