08-24-2007 12:04 PM — In their proposal to renegotiate the Sommet Center lease, the local bidders are suggesting an idea that is akin to how much of downtown has been redeveloped over the past decades.
They are looking for an increment deal similar to tax-increment financing, an incentive that has been used in constructing the AT&T Tower, Viridian, the Downtown Nashville Hilton and a host of other downtown projects. With TIF, a developer obtains a loan that is typically used for some public infrastructure aspect of a development. The loan is paid back by the difference between what Metro continues to receive in property taxes and the new level of taxes generated by the development.
In the Predators situation, the local bidders presented the idea of establishing a baseline year, capping what the city paid in operating losses and what it received in arena revenue. Going forward, the team would be responsible for any additional losses and would receive an incentive payment for improving arena performance – all ticket surcharges and sales taxes above the baseline year. Looking at the historical finances, the bidders chose 2006 as the best year to use to build a model to project the arena's operations.
Basically, they are suggesting a kind of a hybrid of what KPMG concluded in a Metro ordered audit four years ago.
"Metro’s case is unique in that the facility management company and the primary sports tenant share common ownership while Metro is responsible for any operating deficit," according to KPMG's report. "For other public arenas managed by an outside facility operator where there is common ownership between the team and the facility operator, the facility operator assumes the risk of any operating losses and benefits from any financial gain … Without renegotiation of existing agreements, significant decreases in the general fund operating subsidy to the GEC are unlikely."
In a TIF deal, the argument for using it is if the development wasn't there, the higher taxes wouldn't be there either. So there's no loss to taxpayers, just no tax gain directly from development. The thought is that the development throws off a broader economic impact through improved other property values downtown that increases property tax income.
With the local bidders proposal, they would get redirected revenue the city isn't receiving now to help keep the team here. By virtue of the team staying and the arena performing better, downtown businesses generate additional sales tax revenue and property values continue to rise to generate more property tax revenue for the general fund. That's one side.
There is an argument that arena activities merely redirect local entertainment dollars and don't add to the overall base, so the direct impact isn't necessarily that great. The counter to that is the Predators have a broader economic development impact as another amenity for the city that helps attract companies and employees to the area, a financial impact that is nearly impossible to measure.
It looks like the local group plans to improve the arena's performance for non-Predators events by hiring a national firm that manages more than one venue, perhaps a dozen or more. Sources have said that Powers Management, while doing a good job for what it can do, doesn't have the leverage of a national firm to bring more concerts and other events into the arena. One source compared it to an independent label versus a major record label, which has much more leverage in the distribution chain than an independent to get a recording artist's album on more retail shelves.
As it is, concerts bring some new dollars into Nashville. Downtown hotels have filled many rooms when big name acts like Kenny Chesney, Tim McGraw, the Rollings Stones and others come town.
Bringing more concerts may mean higher hotel occupancy tax collections, which, of course would be music to the ears of the supporters of building a new downtown convention center. More hotel rooms, means higher occupancy and possibly higher rates and could buoy the tax revenue more than expected for funding the proposed center.
You must be logged in to comment. If you do not have an account, you can join our esteemed subscribers.