It is no secret I am a skeptic of Mayor Dean's proposed convention center (and eventual hotel). This is, of course, unfortunate as I generally like to support the Mayor's initiatives and for the most part I have. Some of those things have been things I wholeheartedly endorsed like water rate reform and equitable funding of stormwater services. Some of those things I have been more ambivalent about like the Bellevue Mall economic development zone and the Predator's lease.
Since my primary job is to represent you, I have to use my best judgement and assess this project in terms of its impact on your life and the future of this city. When I apply the most basic risk-reward analysis, the Convention Center proposal does not measure up.
- We will borrow $650 million and for that we will get about a 4% increase in room night sales to convention and trade show visitors. We will do little or nothing for leisure and cultural tourism.
- The economic impact for this project is estimated at $135 million. For our $7.5 billion economy that is a less than 2% improvement.
- The estimate increase in tax revenues is about $12 million - a mere .8% boost and not enough to cover the $14 million we will redirect from other activities to the convention center.
- These low returns on our investment suggest we will not significantly improve our tax base.
- Without a significant improvement in our tax base, borrowing $650 million will "crowd-out" borrowing for other things. In order to keep debt ratios at the necessary levels and avoid rating downgrades, we will borrow less for other things. Alternatively, we will ignore debt ratios, continue to borrow for those other things, watch our bond rating drop, pay higher interest rates which in turn means we will borrow less. When we borrow less, the basic infrastructure of our city suffers.
That last concern should be familiar to many public school parents. After the last wave of municipal monument building - the Titan's Stadium and Nashville Arena (both of which as a percentage of debt outstanding were much smaller projects than what we are talking about here) - we borrowed less for schools and they fell apart.
The operation of government is about the allocation of scarce resources. If you do one thing that is one other thing that cannot get done. That is why we as elected officials must look at the allocation of those resources and be certain we are getting the best possible result for each dollar spent. I do not find 1% or 2% improvements compelling and based on a recent WSMV poll neither do you.
UPDATE: Former Councilman at large Chris Ferrell wrote this afternoon to point out that after the LP Field and Arena financings, the Council approved a large capital plan for schools. Of the plan that was approved about $100 million was borrowed for schools between 1997 and 1999. About this time also, Metro was placed on Negative Credit Watch for many of the same reasons we are on the naughty list again today. In other words, rating agencies make no value judgements about our capital projects.
This post was meant, in part, as a discussion of debt ratios and their impact on borrowing patterns. I am certain Mayor Dean, like his two predecessors considers school funding a top priority. But rating agencies and bond investors being what they are do not care about our vision as a city. They care about debt burdens and tax rates and revenue streams. Sometimes, like it or not, those things are just not compatible.