January 22, 2013
The City of Memphis has decided to go ahead with the Pyramid/BassPro/Pinch project to the tune of $192 million dollars. The following is from a 2011 article in the Commercial Appeal.
While acknowledging that the project carries risks, Memphis officials and financial planners say the deal to fund The Pyramid’s transformation into a Bass Pro Shopsdestination store has been structured to provide several layers of protection fortaxpayers.
Conservative estimates regarding the major financing component — state sales tax revenues from a Tourist Development Zone covering all of Downtown and the MedicalCenter district — indicate that there should be ample funds to repay bonds issued forthe project, they say.
In the event that sales fall short of projections, two funds — a reserve fund and a surplus fund — will be established to insulate city taxpayers from having to make up thedifference.
“We tried to include as many protections as possible for the city in the structure of thefinancing,” said Tyree Daniels, first vice president of Public Finance InvestmentBanking at Morgan Keegan & Co.
A Tourist Development Zone is a financing method created by the state to help
municipalities fund major public projects.The Memphis zone has been used to repay the cost of the renovation of the MemphisCook Convention Center. Over the last five years, it has produced an average of $10.4million per year, about $3 million more than needed to pay the debt service on theconvention center expansion, according to a report by consultants RKG AssociatesInc.
I went to the Center City Revenue Finance offices and spoke with Paul Morris, President of the Center City Revenue Finance Corporation. I asked him for copies of the Loan Agreement and the Replenishment Agreement. He said that he did not have copies but promised to send them to me. I asked him directly if the City of Memphis and the taxpayers were standing behind the bonds. He said “Not exactly” but there is a legal promise to stand good for the bond principal and interest if the incremental sales taxes are not enough. Ad Valorem taxes (property taxes) are excluded but everything else is at risk. Naturally property taxes would have to be raised if other sources of city income were spent on bond principal and interest.
There was one other interesting point that he made. Of the $192 million to be borrowed, $67 million was for the Convention Center Acquisition from the County. The Convention Center loses money every year so we paid $67 million to get full control of a losing proposition. The rest of the money was a shown below.
- Warm Lit Shell $20,000,000
- Seismic Retrofit $25,000,000
- Landlord Contribution $33,000,000
- Convention Center Acquisition $67,000,000
- Pyramid Acquisition $3,200,000
- Lonestar Acquisition $15,000,000
- Total $163,000,000
Add debt reserve and transaction costs and you come to $192 million.
I truly hope it works and the bond principal and interest are paid on time and fully. Tell me what you think.