Councilwoman Evans Deconstructs Convention Center Financing
Metro Councilwoman Emily Evans must have had a premonition about how Sunday’s convention center debate at Vanderbilt University was going to turn out.
In her blog posting May 26th, Evans writes that the debate recalled ghostly words of Will Rogers and Mark Twain. ” It Ain’t What You Don’t Know… It’s What You Know That Ain’t So” is the title of a blog posting that deconstructs the convention center’s financing as well as gives her take on the debate.
Her conclusion is no matter what way it goes – general obligation or revenue bonds – the Nashville taxpayer will foot part of the bill for the $635 million center. The latter, she writes, would cost the taxpayer more money.
Metro Finance Director Rich Reibeling has a different view and it’s probably fair to say that Evans isn’t a favorite in his office.
Tonight is the final vote on going forward on acquiring land. As one business leader noted this afternoon, “This will make Nashville pregnant,” meaning there’s no turning back now.
Meanwhile, Walt Baker, chief executive officer of the Greater Nashville Hospitality Association, seemed a little less than thrilled with the presentation of Dr. Heywood Sanders, professor from the University of Texas at San Antonio, during the debate.
He passed around this afternoon a missive titled “Convention Center Facts – Not Fiction.”
Here’s the full text:
Let’s forget all the “I’m for/I’m against” rhetoric for a few moments and look at the business of conventions and some of the REAL facts – all public and available for anyone who cares to know the real situation and not someone else’s point of view.
First, the convention business.
A convention center is literally a piece of equipment for a city. It is a capital expense that is used to create economic impact – much like a printing press is to a printer. Without a printing press that is functional and contemporary, a printer cannot compete with other printers. And a printing press is designed to run paper and ink to make final products that are sold.
A convention center is a singularly focused activity that introduces people to a city, some for the first time. A convention center fills hotel rooms, restaurants and shops. More importantly, a convention center causes people to spend money and leave their tax dollars behind. Without a convention center, the single focus is gone and the spending has to be made up over many other activities and efforts.
Convention centers sometimes operate at a “loss.” If you look at the pure bricks and mortar of a convention center, sometimes this is true. Sometimes, hotels will give away meeting and ballrooms if a group is going to bring a large number of people, buy the hotel’s food and stay for a few days. The meeting and ballrooms then become a means to and end. Convention centers operate that way, too. If the meeting is important enough, big enough and will spend enough, sometimes the space in the convention center will be negotiated to get the bigger economic impact. It is the bait to catch the bigger fish.
The overall convention market is in transition. This is true. Some conventions are shrinking and some are growing. Segments of the industry are in more transition than others. Manufacturing and major trade show events are feeling the impact of the economy. However, there are segments that continue to meet and grow. The association industry is alive and vibrant. Trade-specific meetings are not on the decline. Medical, insurance, religious and other targeted groups are continuing to meet, and these happen to be some of Nashville’s longtime core convention visitors.. The industry, just like every other industry, cannot be folded and neatly placed in a single box. It is as varied as there are types of businesses and people. One size does not fit all.
Now, the relevant facts.
The current convention center was paid for, entirely by hotel occupancy taxes. While the Metro budget indicates a “subsidy” for the convention center, the “subsidy” was paid for by those hotel tax dollars earmarked for the convention center. That “subsidy” was created by the negotiations to provide reduced-cost or free space in return for the increased economic spending generated by the groups coming in. No Davidson County taxpayers spent a dime on debt service – unless, that is, they used the convention center for a wedding.
The current convention center does not allow Nashville to host many of the types of meetings and groups that are still prospering, in spite of the economic environment. The new center will not be big enough to deal with the mega trade show events that are most impacted at this time. Nashville, as a city, is best positioned to play in the size and type of convention that is least impacted by sudden changes in the economy.
The same data used to paint a gloomy picture, which focused on cherry-picked conventions from the 200 largest tradeshows in the U.S., also showed that 46% of the Top 200 tradeshows actually showed a growth in square feet, 40% had in increase in exhibiting companies and 36% boosted their attendance. And, that’s not even our market. So, the behavior of the few is not indicative of the behavior of most.
The troubled convention centers used as pre-expansion comparisons for the Music City Center are like comparing a Metro Car with a Suburban.
* Nashville: 180,000 total square feet
* San Diego: 2,600,000 million total square feet
* Pennsylvania Center: 624,000 total square feet
* Houston: 1,150,000 total square feet
* Orlando: 1,000,000 total square feet
The Music City Center is not even trying to compete with these centers.
Currently, the Nashville Convention Center’s average attendance size is approximately 1,000 people. The average length of stay is three (3) nights. The visitor spends and average of $840 for the entire stay. Each visitor is accompanied by an average of one (1) additional person.
In 2008, the current center had 189,000 in-house event attendees:
* 132,000 tradeshow attendees
* 57,000 corporate meeting attendees
The sales effort for the new Music City Center is already averaging 6,800 attendees per event. If the new Center books only the same number of events at the higher level, the projections for attendance exceeds the documented attendance of 1,000,000 by 285,200. There is a much broader market to sell to and book from with the new Music City Center. The current level of sales, without a Center, speaks to the level of Nashville’s demand.
Also lost in the argument is the $18,900,000 (1,000,000 visitors x $840 current average spending per visitor over their stay x 2.25% local tax) in annual local tax collections that would be generated from the new convention center. It would be nice to know if there is a single project that could generate this type of tax stimulus to Nashville’s economy. Seriously…name one.
As for funding, the commitment made by Nashville’s second largest industry was that the local taxpayer would not have to bear the brunt of the cost to the industry’s benefit. So, the industry stepped to the plate. It increased the hotel tax and added a room fee (which affects a hotel’s ability to price its product) and put its money where its mouth is. The industry did not ask the local taxpayer for a single thing. The industry did ask the government to be the facilitator of the project – because that is what it can do. Funding was planned using Revenue Bonds to put the risk is on the industry, not the city. The credit of Nashville is not at risk. A school will not be prevented from being built because of the new convention center. In fact, many more could be built without a nickel of property tax money being raised. The cost of revenue bonds is higher than General Obligation bonds is, but it remains true to the industry’s promise to the citizens of Davidson County – “not on your backs.”
There are those who claim that the $635 million claim could be spent on something else. No it cannot. These dollars are not available for anyone else to use for other things. It was legislated for this purpose, and this purpose ONLY. If the convention center is not built, the funding streams go away after the incurred expenses are paid. Those who have other projects they want to pursue will have to find the source of funding, elsewhere.
In conclusion, this project has been vetted for 10 years. 10 years. It has been studied and validated. It has been re-studied and re-validated through economic turmoil and good times. Then re-studied and re-validated, again and again. There are always people who can find fault with any project. The citizens of this city have been the beneficiaries of an industry that has found ways to prosper in bad times, as well as good. It is an industry that has transformed itself from a leisure-only business to a multi-faceted one that combines solid meetings and conventions business with that of leisure travel. It has leveraged the brand of Music City and created a destination that has tremendous appeal. It has put its money at risk and has only asked for cooperation in return.
Dr. Sanders said, during the Sunday debate, that the market killed some convention centers. He is absolutely right. Some have died that way. However, the market is the place that also provides opportunities as well. If the Music City Center is based on faulty logic and data, the market will not purchase the bonds. Now is not the time for junk bonds to be sold. But, if the data is solid, and it is, the market will embrace the bonds and enjoy the rewards. Our own Eric Crafton publicly stated that he would like these bonds in his portfolio.
Ten years is long enough for debate. This has been the most publicized and transparent project in Nashville’s history. The effort has been citywide, not just by the hospitality industry. Those who are opposed have every right to be opposed. Those who are opposed have distorted the facts for their own cause. That certainly is not in the best interest of the city.
