METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY COUNCIL STAFF 200 COURTHOUSE NASHVILLE, TENNESSEE 37201 MEMORANDUM TO: All Members of the Metropolitan Council FROM: Donald W. Jones, Director Metropolitan Council Research Staff DATE: November 21, 1995 RE: Special Called Council Meeting For Stadium Project November 21, 1995 - 4:30 p.m.
A copy of the agreement has been furnished to all members of council. A letter agreement was adopted by the council on October 9, 1995, which outlines the basic terms to be contained in this agreement.
The agreement will be replaced by a lease agreement and a detailed development agreement which must be adopted by March 1996. Under this agreement Metro will construct and lease a football stadium for 30 years to the Houston Oilers who will operate the stadium. The 65,000 - 70,000 seat stadium is to be located on the east bank of the Cumberland River in Downtown Nashville. A 7,500 space parking lot is to be constructed and a number of site development improvements are required to make the site suitable for the stadium. The Oilers will have the ability to lease the stadium for 30 days each year at no cost, with the new sports authority having control of the remaining days in the year. In another agreement negotiated with Tennessee State University (TSU), the school will be allowed to play in the stadium, receiving parking and other revenues, provided, the Oilers have control over available playing dates. The Oilers are to bear all operating expenses of the stadium and will pay a lease payment of $1 million per year to the sports authority, which lease payment is subject to reduction in the event the sale of permanent seat licenses (PSLs) exceed $71.5 million, and if the NFL does not require all or none of the expected $20 million fee. In any event, a minimum of $200,000 annual lease payment must be paid by the Oilers.
The agreement provides that the Houston Oilers will be paid $28 million to relocate to Nashville, and a practice facility of approximately $2.5 million will be constructed for the Oilers. The cost of the stadium acquisition site, including moving expenses for existing businesses, will be approximately $47.2 million, and the site will require $23.5 million for site development improvements. Approximately $300,000 in property tax revenues will be lost to Metropolitan Government as a result of locating the stadium on this site. Additionally, it is anticipated that several jobs will also be lost when the businesses are relocated. Although unsightly to many, this industrial area does have a number of economically viable businesses operating there, especially industrial businesses.
The agreement also sets out certain time deadlines, with Metro's responsibilities becoming final on March 6, 1996. In the event a sufficient number of PSLs ($71.5 million) are not sold by February 15, 1996, and at least $19 million of annual payments for suites and premium club seats are not sold, the agreement can be terminated. Metro will receive the benefit of the $71.5 million in the sale of PSLs and the Oilers will receive all of the monies generated by suite and club seat sales.
The total project cost, including sale of the PSLs, is estimated at $293.6 million. There is a $35 million contingency in the total cost estimate which could include a possible payment to the National Football League of $20 million, which has been required of other cities when a team relocates. It has been represented that as Mr. Adams, the owner of the Oilers, sits on the appropriate committee of the NFL, this fee may not be charged to Metro. If it is not, the savings will be shared by Metro and the Oilers.
The project will be funded from three primary sources. The first source will be from revenue generated by the stadium and its activities in the amount of $160.6 million. Included in that revenue are sales tax, lease payments from the Oilers, lease payments by the state for TSU's use, and the sale of $71 million of PSLs. To the extent that the sports authority is successful in selling more than $71.5 million of seat licenses, the first $13.8 million generated will go to the benefit of the Oilers, reducing their lease payments. The State of Tennessee will provide approximately $14 million for this project from non-project revenues. Metro will provide $120.9 for the project, which includes one cent of the hotel occupancy tax, an annual $4 million in-lieu-of-tax payment by the water/sewer department, and use of $15 million of our current bonding capacity.
The $4 million in-lieu-of tax payments by the water/sewer department is permitted by state law when local governments own utilities. The mayor has pointed out that Nashville Gas and South Central Bell pay in-lieu-of-tax or property tax payments, as does Nashville Electric Service, however, this is not the same situation. Nashville Gas and South Central Bell make in-lieu-of-tax payments or property tax payments and franchise payments because they are for-profit corporations. These franchise payments are made in order to use our right-of-way for their gas and telephone lines. Nashville Electric Service makes in-lieu-of-tax payments to replace the loss of tax revenue if Nashville Electric Service were a for-profit corporation. When the Tennessee Valley Authority act was initially enacted by the congress and "small TVA" acts were adopted by state legislatures within the TVA system, in-lieu-of-tax payments were required to replace that revenue that was lost when for-profit corporations were forced out of business to allow local governments to operate electric utilities. During the last term of council, there was an attempt to lower the water/sewer rate increase as it became apparent that water/sewer department revenues were sufficient and they did not require this final 12% increase to become effective January 1, 1996. After much debate and discussion, it was reduced to 9% over three years beginning January 1, 1996. In August 1995 the finance and water/sewer departments insisted that if this rate increase was not continued, by the year 2000 a significant rate increase would be necessary. Apparently, now the finance and water/sewer departments agree with the council's earlier determination that' water/sewer generates excess revenue. The same state law that allows Metro to require in-lieu-of-tax payments from water/sewer, also requires that rates be reduced if there is excess revenue.
Some discussion has been made concerning the economic impact of a pro sports franchise; however, recent studies show that due to the nature of such projects, the economic impact of pro sports teams is not comparable to other businesses including retail sales businesses.
The benefit to Metropolitan Government for this project is more intangible in terms of allowing Nashville to be a "major league city".
Key to this project is also the sale of the PSLs' which will enable those persons who buy the licenses to have first choice on tickets at the stadium. These private contributions are presently estimated to be about $71.5 million.
The agreement provides for liquidated damages to be paid by Metro to the Oilers in the event the stadium is not completed on time and contemplates that another site would be made available. The alternative site to be used prior to completion of the stadium, including the possible early relocation to Tennessee, will be the responsibility of the State of Tennessee. The agreement also provides that in the event the Oilers breach the lease and move early, that they will pay liquidated damages to Metro which is calculated to pay off the amount of indebtedness remaining attributable to the stadium; however, Metro will still be responsible for the remainder of the debt that relates to all non-stadium construction.
The council, in adopting this resolution, should feel morally committed to taking the steps necessary to complete this project, assuming the state makes their commitments as to funding the project, the cost estimates are accurate, and the sale of PSLs is sufficient. Although this resolution does not legally bind the council, it should be bound morally by this legislation that they are expressing their commitment in seeing this project to completion if the other elements fall into place. Staff will remind the council that since construction of the arena we have been vigorously pursuing a major league franchise, and opportunities such as this opportunity for an NFL team are very rare. Staff is of the opinion that NFL teams are a less risky investment, as their fan base is essentially local and is not dependent upon long distance travel by fans, which could be hampered by inclement weather.
The agreement prohibits Metro from being able to impose a ticket tax on tickets sold for stadium events during the first ten years of the lease, and caps it at $3.00 or 10% per ticket (whichever is less) in the remaining years. This removes a potential source of future funding from Metro.
The sale of PSLs should give the council an indication of the necessary public support for the project prior to the binding votes by the council.