BRADENTON, Fla. — Nashville’s consolidated government leaders Tuesday night voted to move forward with a new convention center that could require as much as $650 million in bond financing that could price next month.
Council members delivered impassioned speeches for and against what will be the Metropolitan Government of Nashville and Davidson County’s largest ever public works project, but no one on the 40-member council discussed whether the financing would have a negative impact on the city’s credit rating.
At least one rating agency said Metro’s general obligation rating could be downgraded because the majority of debt for the convention center will be backed not only by tourism taxes but also by the general fund, a pledge that excludes property tax revenue.
Some council members were concerned about the risk the project presents if the general fund is tapped to pay debt service and they are required to raise taxes to pay for other needs, while other council members said there was a greater risk in not moving forward. Both sides delivered arguments influenced by the current economic decline.
“It’s about jobs, jobs, jobs, and more jobs,” said council member Greg Adkins. “I think this is Nashville’s stimulus project.”
He said the current “landlocked” convention center, which has no room to expand, has “grossly inadequate” kitchen facilities and he stressed that the myriad of taxes supporting the new center are not property taxes.
There is “some calculated risk” in building a new convention center, Akins said, concluding that “when I go to sleep tonight I will rest comfortable knowing I voted for this project.”
Council member Randy Foster echoed others in saying that he believed the city needs a new convention center but not in the current economic downturn. He also worried about the possibility of a “double-dip recession” and the affect it could have on revenue projections supporting the project.
“I’m not convinced this convention center with this finance plan in these most difficult economic times is right for Nashville,” Foster said. “I cannot ignore the pretty evident wishes of a majority of taxpayers of this city who oppose this convention center.”
After producing petitions with thousands of signatures requesting a public referendum on the project, Eric Crafton urged the council to consider a new finance plan using general obligation debt that could save the city as much as $120 million. Taxpayers are “co-signing the note anyway, what’s the difference?” he asked.
The council rejected Crafton’s proposal to delay the project in order to have senior underwriter Goldman, Sachs & Co. “run the numbers” using GO debt financing to see how much the city could save over the finance plan that was ultimately approved. The council also voted against his proposal to hold a nonbinding referendum on the project.
“I have to oppose this convention center because I love Nashville,” said council member Robert Duvall.
Duvall ran through a list of problems he foresaw, such as cost overruns on prior projects and how the city would make up for losses once federal stimulus funds run out for new programs. He also was concerned that the project didn’t include an adjacent hotel that would make the convention center more profitable.
“They are going to come back to us for the hotel,” predicted Duvall. “It’s a $1 billion project we are voting on. The exposure to taxpayers is too great.”
But council member Ronnie Steine said the time is now to replace the convention center because interest rates have never been better and construction costs have never been lower. He stressed that some dedicated funds can only be used for the convention center and the finance plan is based on “conservative projections” that minimize taxpayer risks.
Steine also noted that the council has a proposal for private redevelopment of the old convention center.
With the council’s vote Tuesday approving the project financing, Nashville will move forward with plans to sell approximately $216 million of senior tourism tax revenue bonds and $422 million of subordinate tourism tax revenue bonds that will receive the general-fund backup pledge.
The government plans to sell tax-exempt revenue bonds and taxable Build America Bonds in a sale expected to take place late next month, according to a recent rating agency presentation.
The bonds will be sold by a new credit called the Metropolitan Government of Nashville and Davidson County Convention Center Authority. The bonds will be secured by a mix of tourism tax revenue that includes hotel and motel taxes, an airport ground transportation tax and car rental taxes, and sales taxes.
Moody’s Investors Service on Tuesday assigned an A2 rating to the senior tourism tax revenue bonds, and a Aa3 with a negative outlook to the $422 million of subordinate tourism tax revenue bonds that will receive the general fund backup pledge.
Moody’s said the negative outlook reflected the negative outlook on Nashville’s general obligation rating, which is related to its reduced financial flexibility and the additional potential draws on revenue from the non-tax revenue pledge on the subordinate convention center bonds.
Standard & Poor’s last Friday assigned an A rating and stable outlook to all the bonds. Fitch Ratings last week placed its AA rating on the city’s $1.6 billion of outstanding GO bonds on negative watch primarily because of the additional fiscal strain of the convention center financing. Fitch has not released a rating for the convention center bonds.
The existing Nashville Convention Center has 475,000 gross square feet with 118,675 square feet of exhibit space, one 11,000-square-foot ballroom, and 25 meeting rooms. The proposed new facility, to be called Music City Center, would have 1.2 million gross square feet with a minimum of 350,000 square feet of exhibit space, a 57,500-square-foot ballroom, and 55 to 60 meeting rooms.
Music City Center, including 1,800 parking spaces, will cost $415 million. Land acquisition, to be reimbursed in the bond financing, is expected to cost $57 million. Other costs — such as utilities, insurance, design and engineering, and contingency funding — would cost another $170 million.
The financing schedule, as proposed to rating agencies recently, calls for the preliminary official statement to be released the week of Feb. 8 with pricing of the bonds the week of Feb. 22.