Convention Center Task Force

August 2007 Meeting Summaries

August 2 & August 16 & August 20 & August 23

Finance Subcommittee Report

Meeting Summary

August 23, 2007

Clanzenetta “Mickee” Brown

JCCI Consultant-Task Force Planner

cctf@jcci.org

IN ATTENDANCE: : Convention Center Task Force:  M.G. Orender, chair, Tony Allegretti, Charles Appleby, Danny Berenberg , Juan Diaz, Pam Edwards-Roine, Bob Johnson, T. Lorince, Donald McClure, Mickey Miller, Mike Miller, Dennis Pate, Jim Pritchard, John Reyes, Toney Sleiman, Scott Stuckey, Tri Vu and Mark Wood. Community Participants: Annette Hastings, Carlton Jones, and Bill Sulzbacher. Media: Karen Brune Mathis (TU), Rachel Witkowski (JBJ). Staff: Mickee Brown, Skip Cramer, John Reyes, and Nicole Trueblood.  [Staff note: If your name is not listed above, please advise.]

MEETING TIME: 5:30 - 7:00 p.m.

PURPOSE:  Review Finance subcommittee whitepaper presented by Mark Wood

MEETING SUMMARY

[Staff note: The write-up below is a summary, not a verbatim transcript. Please read through the document to make sure the pertinent points were captured. If anything is missing or misstated, please advise staff.]   

In addition to welcoming task force members, M.G. Orender stated the group must complete its work because an investment has been made in the process. Whatever the outcome, the City will benefit from the work that has been done. The discussions to date have shed light on issues somewhat larger than building or expanding a convention center, namely the future of downtown development in Jacksonville and meeting community needs.

Skip Cramer asked and the task force agreed to enter the previous meeting’s summary into the record. After reviewing the evening’s agenda, Skip also asked that any materials intended for distribution be provided to JCCI staff before being passed to the task force.

Finance subcommittee chair, Mark Wood provided the task force with a brief overview of his group’s white paper, followed by a question and answer period.

Wood’s Presentation

Members of the Finance subcommittee were very knowledgeable, including members who could speak to the state of city finances today, the history of convention business in Jacksonville as well as a history of financing public projects in the local community.

The original charge to the Finance subcommittee was amended to move away from estimating the costs of a specific convention center to estimating the funds available to construct a convention center, expand the Prime Osborn, and/or construct a headquarters hotel. These were the choices left to the subcommittee by the Site Selection subcommittee which preceded finance. The group did not have enough information to determine the exact cost of a new convention center because there are so many site specific variables.

The subcommittee learned that in addition to the convention center (new or expanded) and constructing a hotel if needed, downtown also needs substantial infrastructure improvements to support future growth in that area. Altogether this presents the community with a $500 million problem. [Staff note: $300 million to create pedestrian friendly streets and repair downtown infrastructure, plus $200 million to either build a new convention center downtown near hotels OR expand the Prime and build a nearby hotel. This indicates that the cost of a new convention center is roughly equivalent to the cost of expanding the Prime and building an adjoining/adjacent hotel at the Prime.]

The only source of funding that is specified for building or expanding a convention center is the 2 percent Duval County convention development bed-tax allocation.  It is currently being used to retire the debt on the Prime Osborn Center in 2009. In 2006, that 2 percent was equal to approximately $5 million. Leveraging those 2006 dollars over 30 years would make $45-$55 million available for building a convention center and/or needed hospitality infrastructure.

In addition to the bed-tax, other sources of funding could be created, including levying a food and beverage tax, increasing the sales tax by one-half cent, or extending the Better Jacksonville Plan. However, securing these funds necessitates a change in current public policy.

Right now Jacksonville does not have the funds to build a convention center, but the community does have options. Exercising those options depends upon the agreement of both citizens and political leaders.

Question & Answers

How do we raise $1 billion?

A half-cent sales tax produces approximately $89 million annually today as evidenced by the funds raised via the Better Jacksonville Plan. Leveraging those funds over 15 years could produce $500 million.

Did we consider an increase in bed-taxes?

Duval has reached its maximum at 6 percent. The subcommittee discussed the possibility of seeking legislative approval to raise the bed-tax; however an increase could place Jacksonville at a competitive disadvantage against other cities like Orlando, where the bed-tax is 5 percent.

Are there Return-on-Investment (ROI)models?

ROI depends on developing the right location. An increase in the number of groups booking conventions depends on meeting market demand – right sized center located in an area near a hotel and other amenities.

Comments

• In a public-private partnership the city would commit considerably less money than attempting to finance all of the needed projects using public money.
• The City has found itself in this predicament because we have worshipped at the altar of millage rate reduction for too long.
• The City is at or close to its self-imposed limit in the amount of bond debt it will carry.  Added debt could risk affecting the City’s strong bond rating.

Corrections

During the task force meeting several questions were asked about the two charts from previous reports -  one that estimate the cost of building a new convention center and another that estimates the cost of expanding the POCC and building a hotel.  [Staff note: Chart 1: The source document indicates that the ranges presented were incomplete. See the corrections below.]

Chart 1

Source: Jacksonville Convention Center Site Study; HOK Venue 2004 (Cost ranges based on three sites – Alltel Stadium Lot J, Fairgrounds, and JEA Generating Station)

According to CSL construction costs have increased some 30 percent since 2004; approximately 10 percent annually. Based on this information, the total costs for a new convention center today is within the $200 to $300 million range.

Chart 2

Source: The Economic Effects of Two Proposed Convention Center Improvements on the Duval County Economy;

The Florida Center for Public Policy and Leadership; September 2003. Note: This does not include site specific cost for land acquisition or land improvement.

[Staff note: Chart 2: The source document indicates the following changes in dimension.]

Applying a similar broad brush, the cost to expand and renovate the Prime Osborn as well as building a convention center (headquarters) hotel has increased by approximately 40 percent since 2003. Therefore, the total cost for this project is in the neighborhood of $250 million.

Public Comment: None

meeting adjourned: The meeting was adjourned at 6:00 p.m.

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Finance Subcommittee

Meeting Summary

August 20, 2007

Clanzenetta “Mickee” Brown

JCCI Consultant-Task Force Planner

cctf@jcci.org

IN ATTENDANCE: Subcommittee members – Mark Wood (Chair), Bob Johnson, Don McClure, David Potts, A.D. Roberts, Arnold Tritt, and Tri Vu. Not in attendance: Robert Champion, Randy Evans, Greg Matovina, Mickey Miller, and Michael Munz. Task Force members – Mike Miller. Community Participant: Annette Hastings and Paul Crawford. Staff – Mickee Brown, Skip Cramer, John Reyes, and Nicole Trueblood. [Staff note: If your name is not listed above, please advise.]

MEETING TIME: 5:30 - 7:00 p.m.

PURPOSE:  Review Finance subcommittee white paper.

MEETING SUMMARY

[Staff note: The write-up below is a summary, not a verbatim transcript. Please read through the document to make sure the pertinent points were captured. If anything is missing or misstated, please advise staff.]   

JCCI facilitator, Skip Cramer reviewed the evening’s handouts, reminded the group of the forum decorum, and restated the roles of all involved.

Subcommittee chair, Mark Wood led the group through a review of the white paper prepared by staff. The following comments were noted and changes were made to the white paper as a result.

The chart presented in the white paper should more accurately reflect the real costs of building a convention center even though the specific site is unknown.

The white paper should reflect greater detail for construction costs as follows – cost to build a parking garage, land costs, renovation cost, vs. new construction cost, demolition, and environmental site preparation.

It is impossible to accurately pinpoint the exact cost of building a convention center or expanding the POCC with the information available to the group. As a result, the subcommittee suggested that a range of costs be provided. It is not realistic to provide concrete numbers with so many unknown variables.

The Adams Mark received $30 million in subsidies and cost $127 million to build 966 rooms. Using the Tampa Convention Center Embassy Suites hotel as a cost model seems excessive at $139 million for 360 rooms ($280,000 per key).

List funding sources in order availability; bed taxes are the only (primary) funds dedicated to convention center use at present. The amount being collected for debt service on the Better Jacksonville Plan bond is approximately $87 to $88 million per year. 

All of the options, building new; expanding the Prime and building a hotel; or building a new hotel and convention center are nil without changes to public policy.

It is possible that a J-Bill could be introduced to increase the bed-tax beyond the current 6 percent, however such an increase would place Jacksonville at a competitive disadvantage (Orlando’s bed tax is 5%). Also, hoteliers in downtown might embrace the idea, but those further out may balk at the idea.

This subcommittee agreed to two recommendations.

• Leverage the money available (bed-tax) in a public-private partnership to create a competitive convention center package. Build a convention center near an existing hotel or build a hotel near the Prime. (Short term)
• Invest in the time and effort needed to change public opinion and raise the capital needed to develop all of the components needed for convention center success – competitively sized convention center, hotel, amenities, and downtown infrastructure improvements.

Public Comment: None

meeting adjourned: The meeting was adjourned at 7:00 p.m.

__________________________________________________________________________________________________________________________

Finance Subcommittee

Meeting Summary

August 9, 2007

Clanzenetta “Mickee” Brown

JCCI Consultant-Task Force Planner

cctf@jcci.org

IN ATTENDANCE: Subcommittee members – Mark Wood (Chair), Bob Johnson, Don McClure, and Mickey Miller. Not in attendance: Robert Champion, Randy Evans, Greg Matovina, Michael Munz, A.D. Roberts, David Potts, Arnold Tritt, and Tri Vu. Task Force members – Ron Barton, Jack Diamond, and Mike Miller. Community Participants: Annette Hastings. Staff – Mickee Brown, Skip Cramer, and John Reyes.

[Staff note: If your name is not listed above, please advise.]

MEETING TIME: 5:30 - 7:00 p.m.

PURPOSE:  Review funding options, focus on public private partnerships

MEETING SUMMARY

[Staff note: The write-up below is a summary, not a verbatim transcript. Please read through the document to make sure the pertinent points were captured. If anything is missing or misstated, please advise staff.]   

Chair Mark Wood welcomed the subcommittee and reiterated that the group will focus on the goal of identifying potential funding sources.

JCCI Facilitator Skip Cramer updated the committee as follows. 

•          CSL will not be able to present its Phase II results until September after which both the Finance and Site Selection Committees will reconvene.
•          The average price per square foot for convention center construction is $300 according to CSL.
•          HOK’s 2004 estimates of $225 PSF for hard construction costs included an inflator because it was understood that the convention center would not be built right away. HOK uses a 35 percent mark-up for FFE costs.

The subcommittee also approved the August 5th meeting summary.

The meeting that followed included an explanation of Tax Increment District (TID) projections from Ron Barton and a general discussion regarding funding sources and financing methods.

Worthy project, but limited resources

The convention center is a worthwhile project but funding sources are scarce, while competition (demand) for those funds - from bed-taxes to property taxes - is great because Jacksonville has numerous needs.

Instead of focusing on improving the city’s infrastructure, Jacksonville has concerned itself with reducing millage rates and the City’s infrastructure is suffering as a result. Jacksonville also spends too little on capital improvement projects.

Right now downtown needs $270 million in infrastructure improvements, including the riverwalk bulkhead. Making downtown streets more walkable to compliment the growth of residential, retail, and entertainment outlets will cost $18 Million.

Tax Increment Districts

Downtown Jacksonville has three Tax Increment Districts (TID’s): Southbank, Northeast, and Northwest. The funds on the north can be commingled and used throughout the Northbank, but Southbank funds are reserved for that area alone.

The projections also assume that no other projects will be built on either the Northbank or the Southbank. Available revenue potential is greatest in the Northeast district, reaching $2 million by 2010-11.  The same amount will be available in the Northwest district in 2016-17. By 2014-15, $2 million in available funds is projected for the Southbank.

JEDC’s projections assume a 9.64 millage rate, however next year the rate will drop to 8.4 mils, reducing the available funds projected.

The funds collected in local TID’s are held in trust for one year and if not used these funds are used for general downtown purposes. As a result, no funds are held in trust to develop projects downtown or to maintain the current infrastructure. For example, the Riverwalk’s pilings are in need of repair, but no funds are held aside to cover this item.

Jacksonville has never issued Tax Increment Financing (TIF) bonds because the funds collected in the TID’s are not allowed to accumulate; therefore there is no funding source.

Building a hotel at the Prime Osborn using TIF could spur development in the surrounding area, which would positively impact the amount in bed-taxes collected.

One of the purposes for TIF is to acquire, assemble, and clean up a property to be sold.

Funding sources

Bonds issued on bed-tax must be backed by city government; even though the dollars leveraged are not directly tied to the city’s other revenue streams. There is no guarantee that the bed-tax dollars will rise sufficiently to pay the debt service on bonds. The market requires a secondary backer – the City of Jacksonville. Bonds generated based on revenue sources such as bed taxes cannot be leveraged at 100% of projected value.    

The dollars generated by the bed-tax are not truly known as the POCC has been refinanced many times over in an effort to raise needed revenue, which was placed in the general fund. The margin was never set aside for improving the convention center or convention business.

The committee reviewed various funding options and funding sources for their availability in both the near and long term.

Local Sales Surtax (current - 1%)

An additional ½ to 1 penny may be available [Staff note: Bob Johnson will verify)

A public referendum is required to assess this tax.

Local Tourist & Convention Tax (current - 6%)

Rate is at its maximum. After 2009, 2% will be available when the POCC debt service retires. Today that amount is $4.9 Million. Once available other interests will be eligible to compete for these dollars. 

Local Food & Beverage Tax (none charged locally. Allowable rate is 2% hotels; 1% other establishments)

A public referendum is required to assess this tax.

[Staff note: The total amount spent in all “Food services & drinking places” within Duval County was $951 Million as of the last economic census in 2002. Source: www.census.gov]

Admission Fees (none in excess of what can support a given venue)

A ticket surcharge requires a change in public policy. This additional cost could reduce event participation.

Other taxes or fees - car rental fee, airport access fee, and entertainment tax (None currently charged)

An entertainment tax is a possibility. Car rental fees have been unsuccessful in markets with a heavy tourism economy and are likely to fail in Jacksonville. Airport access fees would remain with the airport. Increasing the fuel tax was discussed as well, but adding to currently high fuel cost to build a convention center or improve the POCC may not be feasible.

Self imposed industry taxes (None currently in place)

Local hotels would be willing to participate. It is unclear if restaurateurs would be as willing because this group of business owners is less organized than the hoteliers.

Expand Better Jacksonville Plan 

The Plan is expected to sunset by 2030, but can be extended.

Financing methods

General Obligation Bonds

Typically secured by a pledge of the issuer’s ad valorem taxing power; requires sufficient revenue to support a bond issue. A public referendum is required.

Industrial Revenue or Development (IR/D) Bonds

Bond proceeds are loaned directly to private users to finance certain types of facilities; requires sufficient revenue to support a bond issue.

Certificates of Participation

Evidences a pro rata share in a specific, pledged revenue stream, usually lease payments.

[Staff note: Bonds can also be issued on lease payments to finance construction of facilities used by a state or municipality, which leases the facilities from a financing authority. Payments are appropriated from the lease payments or general tax revenue. Source: Municipal Securities Rulemaking Board http://www.msrb.org/msrb1]

Economic Development Bonds, High Impact Grants, Incentive Electric Rates

Not applicable.

Manufacturing tax exemptions/refunds

This tax abatement tool is not applicable.

JEDCO Small Business Loans

Not applicable.

Section 108 Loans

Not applicable.

Enterprise Zone Tax Benefits

Some EZ capacity is available.

__________________________________________________________________________________________________________________________________________

Finance Subcommittee

Meeting Summary

August 2, 2007

Clanzenetta “Mickee” Brown

JCCI Consultant-Task Force Planner

cctf@jcci.org

IN ATTENDANCE: Subcommittee members – Mark Wood (Chair), Bob Johnson, Greg Matovina, Don McClure, Mickey Miller, and Tri Vu. Not in attendance: Robert Champion, Randy Evans, Michael Munz, A.D. Roberts, David Potts, and Arnold Tritt. Community Participants: Annette Hastings. Staff – Mickee Brown, Skip Cramer, Nicole Trueblood, and Ben Warner. [Staff note: If your name is not listed above, please advise staff.]

MEETING TIME: 5:30 - 7:00 p.m.

PURPOSE:  Review financing tools and available funding capacity.

MEETING SUMMARY

[Staff note: The write-up below is a summary, not a verbatim transcript. Please read through the document to make sure the pertinent points were captured. If anything is missing or misstated, please advise staff.]   

Chair Mark Wood began the meeting by asking for self-introductions. JCCI facilitator Ben Warner went on to cover the ground rules and review the information in the handouts.

The group briefly discussed the work done by the previous subcommittees.

•          Business Demand: Jacksonville is able to compete on its merits, but often loses business because other communities have larger convention centers, a headquarters hotel neat the convention center, and are located in more well known destinations.

•          Market support and Infrastructure: Downtown Jacksonville offers both hotels and a range of amenities, but in insufficient numbers. The hotel and amenities in place do not directly support the Prime Osborn. At the same time Jacksonville has not done a good job of marketing its positive attributes as a mean so increasing interest in the area.

•          Site Selection: This subcommittee continued the theme of collocating the convention center, hotels, and amenities and finalized eight locations dividing them into two groups; those that are near hotels and amenities and those that would need investment to create such an infrastructure. The options from site selection are build a new convention center near a hotel, renovate/expand the POCC with a hotel, build a new convention center and a new hotel.

The goal of the Finance Subcommittee is to understand what has occurred previously but to put on blinders to consider: 

•         How much will these options cost?
•         Where will the money come from?

The work of each subcommittee contributes to the work of the whole and will help the task force determine where Jacksonville goes from here.

The chair opened the floor for discussion…

City outlook

The City of Jacksonville is obligated to balance its budget. In the past 14 out of 15 years the City has used one-time-money to meet this obligation. Changes in policy no longer permit this balancing tactic.  At the same time, the City established policies regarding maximum debt capacity, which limits the issue of new debt.  However, the City’s position is not static and changes over time as debt obligations are retired, tax revenue grows, new priorities are set, and new obligations entered into.

Bed-tax revenue

•          Bed tax can not be increased beyond the current 6 percent, which is the maximum for tourist development in Duval County.

•          Debt service payments for the Prime Osborn will end in 2009-10 and could be available for other uses at that time. If the $4.9 million collected for Prime Osborn’s debt service in 2006 were leveraged for bond issue, it could yield approximately $45 - $55 million. However, those funds could be used for facilities other than the convention center per state law. With the stadium needing an estimated $40 - $60 million in improvements there is no guarantee that the funds currently earmarked for the convention center debt will be automatically leveraged for a convention center building or expansion project.

•          This is the time to make the case for having the 2 percent allocation to the convention center remain connected to the convention center.

Property tax reform

Using property taxes to pay for the convention center can not happen without a local referendum to increase taxes. It is unlikely that voters will tax themselves to build a new convention center or renovate the POCC.

The City has competing infrastructure needs and few revenue streams. To offset its losses and balance the budget the City has had to diversify its sources of revenue by creating a new fee structure for some services. Investment in areas like traffic management and the park system are still important to the city but there are limited funds for those and other needs.  State mandated property tax reforms have limited options for financing a convention center project.  Passage of the pending January 2008 property tax referendum will have a serious impact on local government finances for years to come. 

Downtown development

JEDC can offer incentives on downtown projects, but focusing on the convention center will come at the expense of other and perhaps more pressing downtown needs, such as market rate housing, retail, and vertical density.

Tax Increment Funding (TIF)

•          The highest and best use for such funding may not be for a convention center.

•          Definition: The tax increment--an increase in real property taxes from the difference between the taxes generated before and after the investment in real property--is used by TIF to fund a portion of the costs for improvements.

•          TIF may not generate large amounts of revenue because there is no proof that people will support a convention center.

[Staff notes: 1) According to a recent Florida Bar Journal Article, “Even though TIF can be thought of as a financing tool, it is also a land development and improvement tool. There are other financing tools available, but by and large TIF has been the most common method used in Florida and elsewhere to increase investment and growth in local government development.” Source: Florida Bar Journal; July 1, 2007; Tax increment financing in Florida: a tool for local government revitalization, renewal, and redevelopment]

2) If TIF is not appropriate for convention center development, is it appropriate for hotel and/or amenity development at or around the POCC? Market research done by Gerald Murphy and Associates, Trends Analysis Projections, and CSL indicate that the lack of a headquarters hotel and other amenities deter event planners from choosing Jacksonville as a convention destination.]

Other fund sources (mentioned, but not discussed in detail)

•          City backed loans
•          Ad valorem bonds
•          General obligation bonds

Public-Private Partnerships

•          There is a market for a private developer to come forward if the city would commit a certain amount of money to the effort.

•          Convention center operations have already been privatized via SMG.

•          Any proposed public-private deal should be a win-win for all parties. For the city to guarantee a specific return on private investment is less than ideal for the City

•          Private facilities generate revenue to run government.

Comments…

Our best case scenario may be to build a hotel next door to the POCC.

We need to look at all financing and incentive tools then determine their appropriateness, applicability and capacity.

Questions

Can we update our older figures to get an idea on how much the convention center will cost? [Staff note: CSL will provide updated estimates when Phase II is presented in the next 4-6 weeks. In the meantime staff will make an educated guess based on recently completed projects in the country.]

Public Comment: None

meeting adjourned: The meeting was adjourned at 7:05 p.m.