September 18, 2006

Definitively Uncertain

A headline on today's Tennessean front page about the proposed new convention center for Nashville reads:

20% of cost is the most public will pay for hall.

Well, that would be great news, if it was true. But it isn't. There is no such deal - just a misleading headline that makes you think the hook taxpayers are about to be hanged on isn't that big. Read the story:

"The funding plan should generate sufficient revenue to fund the annual (Music City Center) debt service, but only when the MCC attains the expected level of activity," the report by University of Tennessee researchers said. This means Nashville taxpayers could be left on the hook. Overall, however, those taxpayers' burden should be less than 20 percent of the total, said LeAnn Luna, an assistant professor of accounting at UT who worked on the

Before the Music City Center project proceeds, there should be a guarantee capping taxpayers' share. And, given that nobody really knows yet how much the MCC will cost - and given that both the stadium and arena cost more than anticipated - that guarantee shouldn't just cap taxpayers' share at a percentage of the overall cost, but should cap it at a fixed dollar amount.

Update: Ben Cunningham notes that the un-promise of taxpayers bearing no more than 20 percent of the cost is about as reliable as the rosy scenario on which it is based:

Like most large (in this case, humongous) taxpayer funded projects where there is a large industry (tourist and hotel) trying to get funds from taxpayers to subsidize them, the "studies" performed to justify the project are always "best case scenario, all other things remaining the same." And, of course, the scenario is never "best" and all "other things" never remain the same.

If everything is so rosy then surely the hotel and tourism industry would be HAPPY to assume all the financial risks just like any other private business making an investment. But that is the basic fallacy for all taxpayer subsidies of private business. If it can only be "profitable" by taking money out of the taxpayer's pockets to pay for it then its not really profitable.

The downtown arena has never turned a profit, but no one seriously argues that it hasn't been good for the city overall. And I'm not talking about "good for the city's image" or "good for the public's morale" or nebulous things like that. I'm talking about the city's fiscal health. The arena's historical bottom line may be in the red, but the investment in the arena has generated a huge return for the city in terms of increased economic activity and vitality downtown, increased downtown property values, increased downtown construction, and increased tax revenue from property taxes on downtown real estate.

I recall but haven't yet located an economic analysis of the arena a few years after it opened showing that the city had more than recouped taxpayers' investment in the arena through increased revenue from related economic activity, development and rising property values downtown.

Properly done, a project like the Music City Center, while itself isn't profitable from a strict analysis of its own bottom line, can be an economic engine for the city, boosting tourism and, therefore, tourism-related tax revenue from sales taxes, hotel-motel taxes, etc; boosting employment not just at the convention center itself but at area hotels and restaurants, and boosting the growth of related, privately-funded and taxpaying development downtown.

I would say this, though. While I believe Nashville would benefit from a new convention center, taxpayers' share of the Music City Center ought to be capped at a specific dollar amount that may not be increased without a referendum.

Right now, there is no such protection. And the un-promise falsely implied by today's Tennessean headline is worth less than the paper it is written on.