When Nashville’s current convention center was built, the city’s residents and leaders developed a model that allowed for it to be exclusively financed – both the construction phase and operation – through hotel/motel taxes generated by visitor spending.
The existing convention center was paid off early, and the same successful model is being used to finance the Music City Center.
In April of 2010, the Convention Center Authority issued $623 million of tourism revenue bonds to finance the construction of the Music City Center. The bond proceeds financed the cost of design, land acquisition, and development, a $415 million construction budget and a $40 million debt service reserve fund, which is equal to the maximum annual debt service on the bonds.
The Convention Center Authority’s bond issue benefitted from a historically-low interest rate environment and from the use of Build America Bonds, a subsidized municipal bond program made available by the federal government through the American Recovery and Reinvestment Act. As result, the Convention Center kept its interest costs to a minimum.
The bonds are payable primarily from tourism-related revenues and incremental sales tax revenues generated in connection with the Music City Center. The specific funding sources are identified below:
- 2-cents of the existing 5-cents-per-dollar hotel/motel tax
These funds were originally used for debt service and operating the old convention center, which debt was retired in 2007.
- Additional 1-cent to the hotel/motel tax
Pursuant to TCA 7-4-102(b)(2), the Metropolitan Government authorized the collection of an additional 1-cent privilege tax on the occupancy of any hotel/motel room, effective September 2007.
- $2 Convention Center fee per room/per night, countywide on all hotels/motels
Pursuant to TCA 7-4-202(a), the Metropolitan Government authorized the collection of an additional privilege tax upon the occupancy of each hotel room of $2per room/per night county wide, effective September 2007.
- Rental car tax at one percentPursuant to TCA 67-4-1908, the Metropolitan Government authorized the collection of a surcharge or tax of one per centon the gross proceeds derived from the rental of any passenger motor vehicle, truck or trailer for a period of five days or less. This tax primarily applies to travelers and was effective September 2007.
- $2 Airport ground transportation departure tax
Pursuant to TCA 7-4-203(a), the Metropolitan Government authorized the collection of a tax on the privilege of contracted vehicles (taxis, shuttles, buses and other transportation) exiting public airports. This tax primarily applies to travelers and was effective September 2007.
Incremental Sales Taxes from Tourism Development Zone
Pursuant to TCA 7-88-106(a), if a municipality has financed a “qualified public use facility” (which includes the Music City Center) within a tourism development zone, then the annual increase in state and local sales and use taxes within the tourism development zone, to the extent the increase exceeds the increase in the county at-large, is allocated to the Convention Center Authority to pay debt service on the bonds. The City has created, and the State of Tennessee has approved, a Tourism Development Zone that encompasses the areas of downtown Nashville area projected to be impacted by the Music City Center. The allocation of Tourism Development Zone sales taxes will begin once the Music City Center is completed.
Sales tax revenue on items associated with the MCC “campus”
Pursuant to TCA 67-6-103(d)(1)(E), the sales tax generated by the Music City Center is allocated to the Convention Center Authority. In addition, state law provides for the similar allocation of sales taxes collected from the premises to convention center hotels.