No one thinks about how long-term promises affect a public entity’s general fund, but Tennessee offers a cautionary tale. Last month, the Metropolitan Government of Nashville and Davidson County announced a new stadium deal with the Tennessee Titans. In 1996, Davidson County taxpayers voted to partially fund the construction of a football-only, open air stadium as part of an incentive package to lure the Houston Oilers to Tennessee.
Another part of the package was the promise by “Metro” to provide a “first-class stadium” for the Titans until 2039. A typical professional sports venue has a life expectancy of 30 years or less. The promise to provide a stadium for the Titans, therefore, included an unspoken agreement to replace the stadium at some point during the Titans’ residency there.
In 2010, Nashville suffered severe flooding when the Cumberland River rose nearly 52 feet over its banks. Six feet of water covered the playing field, and the arena’s underground locker rooms were flooded. In 2012, the Metro, which owns the stadium, plowed millions of dollars in upgrades into the stadium. The upgrades included new elevators, new LED displays throughout the stadium, and a new sound system.
Recently, the Metro hired a consultant to estimate the cost to complete a major renovation of the facility. Predictably, the numbers were not pretty. The consultant estimated that the project would cost as much as-$2B. Because of the ownership structure of the stadium, that money would have to come out of the Metro’s General Fund.
Keep in mind, that the Davidson County taxpayers agreed to partially fund the construction of one stadium project. They did not agree to underwrite forty years of promises (including a stadium renovation) that their elected officials made to attract a National Football League franchise.
General fund backing creates unfunded liabilities
Hiring a consultant did not simply answer the question of the cost of renovating the stadium. It finally put a price tag on Nissan Stadium’s unfunded liability. If apportioned to each resident of Davidson County, that would be about $2,850 apiece, on top of whatever taxes they already pay for the services they receive from the Metro. (Davidson County’s median household income was $62,500 in 2020, and 12.8% of residents there live in poverty.)
Following the consultant’s report, Metro worked with the Tennessee State Legislature to come up with a new plan. The new stadium proposal will use a combination of state funding, and new hospitality taxes. In addition, the team agreed to pay $62M in construction costs the stadium incurred over the last four years and the remaining bonds owed on the stadium. Both of those costs represented expenses the Metro owed but had no funds to pay (other than its General Fund).
Nissan Stadium was the classic case of over-promising and under-delivering. It relied on revenue that never materialized and didn’t consider the exceptionally expensive maintenance costs a public facility requires.
While WCC’s hotel plan is not likely to absorb $2B from the general fund, it does create unfunded liabilities. They are both unknown and unknowable until the project starts generating revenue. And under no circumstances can the plan account for unforeseen circumstances like flooding. (I mean, it’s not like the Trustees are planning to build it right on the banks of the Huron River, right? Oh, wait…)
Ridiculous, off-mission plans jeopardize future operations
The Health and Fitness Center at WCC created a similar unfunded liability that the taxpayers of Washtenaw County now must underwrite. Unlike Davidson County, however, the Washtenaw County taxpayers never agreed to allow their tax dollars to be spent this way.
No one sees the future. Pandemics happen. The Trustees neither had nor sought a plan to address the problems that might cause. Unexpected and expensive maintenance crops up. The Trustees had no plan to address it. The only revenue plan the WCC administration had was to exceed the building’s capacity. The result was a $4.5 million loss on operations last year, and the inability to generate revenue this year. Meanwhile, the ridiculous maintenance costs on a building no one asked for continue unabated.
The Trustees thought the Health and Fitness Center would attract St. Joe’s interest. That failed miserably because St. Joe already has its own rehab facilities. Undeterred, the Trustees now want to build a hotel near St. Joe to attract business from people staying there while they undergo medical treatment.
Think about it. The Trustees’ ghoulish business plan for their hotel relies on taking advantage of peoples’ medical misfortunes.
Nice. What could possibly go wrong?
Photo Credit: Marie , via Flickr