Why the Titans stadium deal is a good deal for Metro taxpayers.

Courtney Johnston

by Metro Councilmember Courtney Johnston, District 26, April 26, 2023 - The Stadium Deal – Why?

 When I ran for office in 2019, one of the main reasons I ran was because I saw a critical need for fiscal responsibility within our government.  If you’ll remember, in 2019 we came dangerously close to being taken over by the State because we didn’t have a balanced budget.  Property taxes were raised in 2020 because of decades of poor fiscal management.  I’ve seen many agreements that metro has entered into over the last couple of decades that were poorly put together, poorly thought out and/or poorly executed.  When this happens, the collateral damage is you, the taxpayer.  Because everything comes back to money and when the government needs it, they get it from you by raising taxes.

The current lease with the Titans and the Sports Authority is a good example.  While the revenue sources for the debt service (bond payments of principal and interest) are sufficient, what wasn’t contemplated in this financial arrangement was money for repairs, maintenance and capital improvements which we are obligated to pay for under the current lease.  When a structure is 5 and 10 years old, that’s not a big problem.  But as that structure ages, it certainly becomes one.

 OUR CURRENT SITUATION…

Currently, we are likely in breach of contract as we, since 2018, have not been able to fulfill our contractual obligation to pay for needed maintenance and repairs.  In order to continue to host events there, the Titans had to pay for those projects.  So, we owe the Titans $32 million today.

 In addition to the $32 million we owe the Titans for what they’ve paid for, our consultants estimate additional immediate stadium repairs totaling $362 million, plus an additional $235 million in repair projects over the remaining life of the lease (possibly to 2039).  That’s a total of $597 million in repairs and maintenance we’re obligated to and DOES not include a renovation.  Understanding that our current total debt capacity is $368 million that creates a total funding deficit of $229 million and a total annual debt service deficit of $22 million. Most if not all debt issued would require a General Fund backstop (that’s our checking account that your property taxes funds).  Also, just because our capacity is $368 million, that certainly doesn’t mean that it’s fiscally responsible or wise to max out that capacity and doing so would eliminate the opportunity for other needed capital projects like sidewalks, libraries, affordable housing, etc.

Our current lease also puts us on the hook for an immediate stadium renovation sufficient to keep the stadium on par with the current condition of “comparable facilities”, plus additional renovation projects over the remaining life of the lease (possibly 2039) consistent with future improvements to comparable facilities.  Given the current condition of comparable facilities and multiple renovation projects in various stages of planning, Metro’s outside consultants estimated that taxpayers should be prepared to fund between $1-2 billion of renovation projects over the remaining life of the lease. We can disagree on the price tag the consultants have given.  But we can’t disagree on the fact that we don’t have the money for even a percentage of this estimated price tag.  What happens when government needs more money?  That’s right.  Your taxes increase – not what I’m interested in doing at all.

 We also owe about $30 million on the bonds that paid for the current stadium.

 The long and short of it is, we’re in a pretty serious financial bind and the only way to stay in the current lease would be to raise your taxes pretty significantly.

 THE BACKSTORY…

As I said, we’ve been in breach since 2018 and that’s how long metro administrations have been trying to figure out what to do.  At some point in 2021, the State (who sits on a comfortable $2 billion surplus) said – If you build a domed or enclosed stadium, we’ll chip in $500 million.  Plus we’ll give you authority to increase the Hotel Occupancy Tax (HOT) by 1% which can be dedicated to YOUR debt service.  That’s quite a bit of money considering that last year alone, the entire HOT totaled almost $2 billion…  Well now we can see a light at the end of the tunnel!  Then the Titans chimed in and said - If you build a domed/enclosed stadium, we’ll forgive the $32 million you owe, we’ll pay off your $30 million bond balance and we’ll pick up the tab for the balance of the cost to build – current estimate of their contribution is $840 million.  Now we have the makings of a deal.  So the notion that metro is bailing out the Titans or subsidizing a billionaire is patently false.  The truth is, the State and the Titans are bailing metro out by contributing to and enabling revenue streams for us to build an asset that only we own.

 SO, WHAT’S THE DEAL…

The proposed plan benefits from $1.35 billion dollars in up-front funding from the State and the Team:

• 500 million state contribution
• $840 million from the Titans, plus responsibility for cost overruns, plus any increase in the stadium project budget between now and commencement of construction
• The proposed plan benefits from a new 1% hotel occupancy tax revenue stream. For the fiscal year ended June 30, 2022, a 1% hotel occupancy tax generated approximately $18.6 million

Compared to the existing lease, Nashville taxpayers will pay less, and assume fewer obligations and liabilities under the proposed plan.

• The proposed plan eliminates Metro’s obligation to fund any capital expenses at the Stadium other than from dedicated revenue sources. Under the existing lease, Metro is required to provide annual funding of $1,000,000 from the general fund and $4,000,000 from the water/sewer PILOT.
• Releasing the areas of the Campus surrounding the New Stadium from encumbrances creates enormous economic benefit from the future development rights – including ground rent payments, property taxes, local option sales taxes and other revenues.
• As owners of the public land, Metro will enter 99-year ground leases for all developable land. Tenants will not only make lease payments but will also be required to pay ad valorem property taxes as if they owned a fee interest in the land – all to the benefit of metro’s General Fund
• The Water & Sewer PILOT revenues total $4 million annually. Once the PILOT is no longer pledged to Stadium bonds, Council could allocate it to another purpose such as to affordable housing or transit. Or – return it to YOU the ratepayer!
• Under the current lease, Metro makes available 6,250 parking spaces to the Team for their exclusive right to use and retain all revenues from event days. Under the proposed lease, the Team is reduced to use and revenues of 2,000 parking spaces during Stadium events. Metro receives their use and revenues at all other times.
• 3% ticket fee at $4 million average per year going to the general fund ($120 million over 30 years)
• Development Returns: Up to $10 million per year to the general fund (up to $300 million over 30 years)
• The new proposal also guarantees the Titans’ presence for the entire term of the lease through the non-relocation agreement.
• A brand new, state of the art domed stadium that is ideally located near hotels and our entertainment district that will host a planned 49 events per year, including Super Bowls, Final Fours, College Football Playoffs and dozens of concerts and other major events.

East Bank Development and Opportunities:

• The current lease does not permit Metro to develop the campus and encumbers all of the parking areas surrounding the existing stadium. With no change, the stadium will remain surrounded by seas of empty asphalt for the foreseeable future, and area sales tax captures will remain minimal.
• The status quo is the continued use -- exclusively for parking -- of prime riverfront property that compromises one of metro’s most important and valuable assets. 
• The proposed new lease frees up the majority of the property for redevelopment, allowing enormously beneficial uses that include:
• Affordable housing opportunities - By retaining land ownership, requiring development partners to include affordable housing, and dedicating parcels to achieve deep affordability. The development RFQ has been issued and includes affordable housing criteria.
• A high-capacity transit boulevard development with multi-modal connections;
• Park space and greenways (providing saturation capabilities for areas in a base flood elevation);
• Riverfront enhancements
• Emergence of four (4) distinct East Bank neighborhoods
• A Master Developer will be competitively selected to oversee development within the campus.
• While 50% of the local option sales taxes in the campus-area sales tax zone apply to stadium construction and related infrastructure, the remaining 50% will be paid to Metro -- 2/3 of which would be allocated to Metro Public Schools.
• Revitalization of the East Bank has been a priority of East Nashvillians for 40 years. Council members recently received a letter from six (6) generations of East Nashville Council members and Mayor Bill Purcell relaying their constituents’ long-standing hope for this redevelopment.
• The new stadium will be LEED Gold certified.

Community benefits:

• The current lease does not produce any revenue that Metro can use directly for community benefit. Without a change, that remains true for the indefinite future.
• Releasing the areas of the Campus surrounding the New Stadium from encumbrances creates enormous economic benefit from the future development rights – including rental payments, property taxes, local option sales taxes and other revenues.
• Again, while 50% of the local option sales taxes in the area sales tax zone applies to stadium construction and related infrastructure, the remaining 50% will be paid to Metro.
• The Nashville Needs Impact Fund will provide resources to non-profits addressing public education, public transit, affordable housing, and supporting diversity, equity, and inclusion.
• o $1 million from the Titans ($48 million over 30 years)
• The Team has committed to at least an $18/hour minimum wage for full-time employees. (See, Titans Economic Inclusion Plan, included in the ONE Community plan).
•  The Sports Authority receives five (5) days use of the stadium, rent-free, for civic-oriented events.

So, under the proposed agreement, unless you go get a hotel room downtown, or purchase a ticket to an event at the stadium and buy items while you’re at the stadium or patronize a business on the 65 acres we get back and can develop which will bring in hundreds of millions in property and sales tax revenues for generations, Davidson County residents will not spend ONE PENNY on the new stadium. 

 I said earlier that metro has historically not done a very good job of negotiating good deals.  Probably one of the better bond issuances we issued was for the Music City Center (MCC).  The revenue streams for that project were incredibly strong and devised such that tourism paid for tourism – meaning not from our general fund.  Where that deal fell short was failing to contemplate how excess revenues would or could waterfall and how metro’s general fund and all Nashvillian’s could enjoy some of those excess revenues.  This is why in 2019, the MCC was sitting on a very healthy unrestricted cash reserve.  For this deal, we have NOT made that mistake.  In fact, the vast majority of time has been spent on creating a waterfall that, among other things, sustainably and responsibly funds a repairs and maintenance fund and a CapX (capital improvements fund) so that we don’t find ourselves in this same situation 30 years from now. 

We’ve spent an extraordinary amount of time working on this deal having the East Bank Stadium Committee convene first back in July of 2022.  We’ve had 39 public meetings including 4 community meetings across the county.  We’ve asked SO many questions of the administration and metro’s advisors comprised of folks from Goldman Sachs, Hilltop Securities, Inner Circle Sports, Venue Solutions Group, and Greenberg Traurig.  Many of those questions can be found here:  https://www.nashville.gov/sites/default/files/2023-04/EB-Stadium-Questions-from-Council-FOR-PUBLISHING-4.4.23.pdf?ct=1680623948 

We have a big problem and this is a big deal, clearly worthy of this kind of time and attention.  I’m so proud of this agreement and how hard we fought to make what was really good even better for Davidson County.  I’m so relieved to have the ability to shift this liability away from you and also improve such an important part of our city for all to enjoy, not to mention benefit financially for generations to come.  This is why I’m voting YES.

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