MEMPHIS IN DENIAL

Reports to the contrary, the world has not changed — at least to the extent that local officials still believe the $250 million Memphis NBA arena can be financed largely by $70 million of sales tax rebates and $57 million of tourism taxes.

The financial assumptions underlying the arena were made last spring, months before the terrorist attacks in New York City and Washington D.C. devastated the passenger airline and tourist industries. But while economists, stock market investors, and state budget experts are full of gloom and doom, there has been only silence in Memphis about a controversial project whose solvency depends on tourism and business travel.

“We’re still comfortable with our projections in the long term,” said City of Memphis Chief Administrative Officer Rick Masson.

The financing plan for the arena for the Memphis Grizzlies spans the years 2002-2025. It includes $57 million in tourism taxes, mainly on hotel and motel rooms. Another $25 million of financing costs is projected to come from rental car surcharges. Since most cars are rented at the airport, that part could also be seen as travel and tourism related.

Northwest Airlines announced last week it is cutting capacity 20 percent and laying off 10,000 workers. Other airlines made more drastic cuts. Gordon Bethune, CEO of Continental Airlines, said travel volume is likely to be halved for a lengthy period. Airline stock prices fell 40 percent or more last week.

In Nashville, Tennessee Finance Commissioner Warren Neel estimates the terrorist attacks will cause $100 million in lost state revenue, on top of earlier predictions of a $100 million shortfall in tax collections. Sales taxes and tourism taxes are so unpredictable that Gov. Don Sundquist and some lawmakers are once again talking about a state income tax.

The state’s contribution to the Memphis arena, pegged at $40 million in the original projections given to the Memphis City Council and the Shelby County Commission when they approved the project, is now being soft-pedaled as something less than that. Masson said the state is contributing “infrastructure improvements in line with what they did for the Titans in Nashville.” He said that could include a parking garage and road improvements but declined to be more specific because Duncan Ragsdale‘s lawsuit is still pending and the project architect has not been hired.

Locally, the Memphis Convention and Visitors Bureau expects the slump to last at least well into next year because of cancelled bookings and delays in opening the Memphis Cook Convention Center, which is also relying on tourism taxes to pay for a $92 million overhaul.

Would all of this not seem to cause some uneasiness about arena financial projections that were considered too optimistic by 70 percent of Shelby County residents in a Princeton Survey Research Associates poll released in June?

Apparently not. Marlin Mosby, the consultant with Public Financial Management hired to work with the city and county, said no meetings have been scheduled to reconsider the projections and none are planned.

“They have not revised them at this point at all,” he said.

Mosby said it is “way too early to tell if this is a permanent fall-off,” and he noted that 2001 revenues have no impact on the arena, which doesn’t go on the books until next year.

There are already signs of a turnaround as the stock market rallied Monday and college and professional football teams resumed playing before packed stadiums.

The ultimate test of the arena’s financing package will be the bond market. Masson said, depending on the outcome of the lawsuit, the bonds could be placed late this year or early next year. He said they would not be insured, which is another change of course from this summer. Interest rates were falling before the terrorist attacks and they have fallen more since then. Masson is confident the bonds will be placed.

“Most people in the bond business are in it for the long haul,” he said.

If the projections are wrong and the funds are insufficient, then the city and county could use any revenue source except property taxes to cover the shortfall.