It’s unlikely that there is a state law more complex and confusing than the Convention Center and Tourism Development Financing Act of 1998, aka Tourism Development Zone.
As a result, the subject is rife with misinformation and mythology, and the pending application for a TDZ at the Fairgrounds is a lightning rod for both. Just two days ago, former City Council member Carol Chumney said that the TDZ is “siphoning dollars away from the city’s tax base” and Shelby County Commissioner Steve Basar said last week that government shouldn’t be providing incentives for retail and hotels.
First, the TDZ does not siphon dollars from the city’s tax base because no city general fund money is spent on the project, and in fact, it may expand the city’s tax base by increasing adjacent property values and citywide sales taxes. That’s one of the reasons we prefer TDZ and Tax Increment Financing (TIF) over PILOTs: the project pays for itself with the taxes created by the project itself. In other words, it is self-financing, but best of all, the new incremental taxes in the TDZ are predominately state sales taxes that stay here to pay for the project rather than being sent to Nashville where about 80% of it would be spent all across Tennessee.
It was also said that the money for the Fairgrounds would be better spent for pothole repairs, testing rape kits, picking up trash, and more children’s activities at city community centers. We agree with Ms. Chumney about the importance of these priorities – we write often about them – but here’s the thing: the TDZ revenues can’t be spent for these purposes. The TDZ law was created to allow cities or counties to keep incremental sales taxes to fund major projects in Tennessee that attract new tourists and create new spending to our state.
TDZ Saves Memphis Money
In fact, if the TDZ is not created, it will cost money that could be used for the purposes cited by Ms. Chumney. If there was no TDZ, City of Memphis would have to pay the debt service on the $37 million that has been spent on Tiger Lane, ADA improvements to the stadium, and new turf, lighting, and sound at the stadium. That debt service would be about $2.4 million.
As for incentives for retail and hotels, that cat’s well out of the bag. Incentives have been given downtown for those purposes, the garage at Overton Square was an incentive that resurrected the moribund place into a hive of activity, and county government has provided hundreds of millions of dollars to pay for sprawl that supported homebuilding but also retail and hotels.
We do not begrudge either Ms. Chumney or Mr. Basar for their opinions, because robust debate about major policies is always helpful, but there is value in consistency and in making sure you have the facts straight. To this end, we think that the public has been poorly served overall by a news media that hasn’t taken the time to understand the nuances of the state law.
Here are a few facts about the Fairgrounds redevelopment that are unlikely to ever be published or broadcast:
* The application filed with state government for a TDZ sets out the maximum potential cost of the project, but at this point, no one knows the actual cost. That amount will be determined by whether a private developer supports the project, or if a developer supports it at all.
* The project depends on whether a developer agrees to pay for the retail buildings that will create most of the incremental sales tax revenues. If the developer feels that the market will only support 150,000 square feet, the entire project will be sized down to conform to the lower funding available. If no developer expresses interest in the project, it will not go forward.
* The cost of the development is paid from the incremental sales taxes that are produced by the project itself. To that end, state law established a sophisticated calculation in which the sales tax baseline is determined and every year after the project opens, is it increased by the percentage of the increase of the countywide sales taxes. The project only gets the increment over that baseline plus the annual increase each year. In other words, City of Memphis and Shelby County Schools get additional revenues ever year.
No General Fund Money in Fairgrounds
Ms. Chumney said: “The City leaders say there is not enough money to fund these (rape kit testing, potholes, etc.) and other urgent needs, yet at the same time is proposing to start another expensive project.” What remains unsaid is that the reason that the city is undertaking the project is because it does not require any money from the city’s general fund, it does not take any money from city services, and it is the state’s incremental sales taxes that pay for most of it. In other words, this is the best kind of city project, because it does not require any general fund money and its bonds will be revenue bonds to remove risk to city government.
We agree with Ms. Chumney that “a city’s character is what makes it great.” That’s why we support TDZ-financed projects, because they create jobs, create new spending, and attract more than a million more tourists to Memphis where they will spend money in our hotels, restaurants, and stores.
Speaking of the city’s character, Memphis is in the process of being transformed and it is astounding to consider what it will look like in 5-10 years as some ambitious plans come into focus, such as Fairgrounds, Pinch Historic District, Great River Crossing and Great River Parkway, Shelby Farms Park Heart of the Park, Main to Main, Graceland hotel and master plan, Overton Square, Overton Park improvements, Eggleston Museum, South End and South Main master plans, Artspace, the greenprint, French Fort, Broad Avenue, and more.
Memphis is on the verge of being transformed, and Ms. Chumney is right that a city’s greatness is also defined by how it delivers services to the most vulnerable and those in the greatest need and to the neighborhoods which are the backbone for Memphis. That’s why we write so often about the city’s underfunded services, and that’s why we find no contradiction in our support for the TDZ projects because the TDZ law gives Memphis the means to make some quality of life investments without touching any money in the city coffers.
Pursuing A Dream
But most of all, the TDZ discussion often routinely ignores a seminal fact: the Fairgrounds project was not something dreamed up by city government. Lost in the discussion about the Fairgrounds redevelopment project is the fact that the amateur sportsplex is the fulfillment of a 25-year dream for Memphis to establish itself as a national presence in what is today an $8.3 billion sports tourism industry (that’s the industry’s terminology).
To top it off, sports tourism is a growth industry with an increase in spending of 9% and an increase of 10% the number of events when 2012 is compared to 2011. Meanwhile, sports tourism attracted 27.5 million visitors last year, and in markets our size, about 60% of the events came from outside the region.
The vision of Memphis as an amateur sports center surfaced in the late 1980s and gained momentum in the early 1990s when some Chamber of Commerce and Convention and Visitors Bureau officials made a case for our city’s stronger play for amateur sports events.
In this push, as it inevitably does in any city pursuing more amateur sporting events, the story of Indianapolis story was often cited. There, the Chamber of Commerce drove a movement to develop amateur sports tourism as a major economic development strategy. Propelled by its Indy envy, Memphis and Shelby County created the Memphis and Shelby County Sports Authority in hopes that it would drive an aggressive sports agenda. The push climaxed in 1994 and 1997 when The Pyramid was the site for the Southeastern Conference men’s basketball tournament (won both times by Kentucky) and the 2001 SEC women’s basketball tournament (won by Georgia).
Both tournaments were cold slaps of reality to Memphis leaders, however, because cities bidding on the tournaments were required to provide huge sponsorships and absorb significant costs. Raising the money became harder and harder. Then again, by that time, the Sports Authority had turned its attention to the 2000 opening of AutoZone Park, which it was energetically supporting, and the 2001 move of the Vancouver Grizzlies to Memphis, because the Sports Authority was the financing vehicle for a new arena.
Essentially, Memphis’ sports agenda turned away from amateur sports, and because of it, the Memphis Sports Council at the Memphis Convention and Visitors Bureau was created with the idea that it would recruit major events and the Sport Authority would provide the funding.
It was into this environment that a committee was appointed in 2004 by former Memphis Mayor Willie W. Herenton and then-Shelby County Mayor A C Wharton Jr. to consider how to capitalize on undervalued and underused assets at The Pyramid and Fairgrounds. That committee broke in two – with a subcommittee concentrating on The Pyramid and the other on the Fairgrounds. The Pyramid group, chaired by businessman Scott Ledbetter, welcomed all kinds of ideas for the reuse of the former arena – from a church to an aquarium and from a theme park to world trade center – before settling on destination retail as the best way to increase tax revenues and expand the economy. The Ledbetter committee then identified Bass Pro Shops as the prime target and went after it.
Sports and Family Focus at Fairgrounds
The subcommittee evaluating the future of the Fairgrounds – chaired by Methodist Hospital executive Cato Johnson – was the first to introduce the idea of mixed uses there with an emphasis on amateur sports. Looney Ricks Kiss was hired to flesh out the concepts, and the first images of a revived, mixed use Fairgrounds were released.
“The future vision of the Fairgrounds is to build on its historic role and location as a family recreation center to become the heart of the city for children, youth, and their families,” the 2007 Fairgrounds report said. “Furthermore, it will be the place where an unprecedented diversity of Memphians can come together to recreate, learn, and grow, forming a tapestry of people that make up the ‘family’ of our great city. Both literally and figuratively, the Fairgrounds will serve as a ‘level playing field’ for all Memphians to refresh and build body, mind, and spirit while strengthening bonds with their families and community through shared recreation, entertainment, and education.”