'Doomsday' Scenario Not Gloomy At All

'Doomsday' Scenario Not Gloomy At All

By The GCBR Staff

When Joe Gruters, a member of the Greater Sarasota Chamber of Commerce's conference center task force, flipped a 38-line, 13-column spreadsheet on the overhead monitors Monday during a presentation to the Sarasota County and Sarasota City Commissions, the picture was a blur.

But the spreadsheet, reprinted here, represents one of the most important elements to the chamber's plan - how the financing would work. Here's how:

Before we explain the numbers, however, it's important to know a few assumptions. As Tim Clarke, chairman of the task force, explained to GCBR last week:

1) Sarasota County's finance staff created the assumptions for the operating revenue, expenses, debt service and depreciation. So these are county estimates. (That's why it's puzzling that commissioners instructed the county administrator to have county finance staff "vet" the numbers, which they prepared.)

2) The county's estimates are conservative. Clarke said the county staff referred to their numbers as "the Doomsday Scenario" - "worst case numbers." As Clarke put it: "The revenue model is very low and the expense model is very high."

For instance, county staffers estimated 4% annual revenue growth, based on historical growth in bed-tax revenues, including the disastrous year following Sept. 9, 2001. They also estimated revenues on $100-a-night hotel rooms, which is conservative, and $21-a-day meals for conference attendees. The expense side included $3.5 million a year in salaries, far higher than what would be realistic, Clarke said. What's more, the proforma estimates marketing expenses would start next year, two years before the center even opened.

With those assumptions, the conference center task force and county staff were able to create a "Commission Reserve Fund" that would help the center avoid cash crises during years when the center operates at a deficit. You can see from the proforma, the center would be expected to post losses the first year of full operation in 2009 and for the next six years.

But those losses, as well as the annual debt service and depreciation costs, would be covered easily by the cash in the Commission Reserve Fund.

Here's how the "Commission Reserve Fund" works: It's all a matter of timing. Conference center planners are hoping a two-cent increase in the bed tax - from 3% to 5% per room night - goes into effect Jan. 1, 2006. From that point on, sales tax revenues would build up in a savings account for the next two years. Only $650,000 a year would be tapped from that fund to cover advanced promotional and marketing costs - in expectation of an opening scheduled for November 2008.

In that two-year period, then, the conference center would build up a reserve of $9 million.

Planners estimate in their "doomsday scenario" that the conference center could generate an operating surplus - even after depreciation - of $65,306 by 2015. That created some disbelief among at least one Sarasota County commissioner. Commissioner Jon Thaxton asked during the chamber's presentation: "Why does this operate in the black for the public sector and not the private sector? Everyone says the private sector operates more efficiently." Responded Clarke: "The power of compounding money makes this work."

Unlike most convention and conference centers nationwide (nine out of 10 lose money annually), Sarasota's would not. According to projections, by 2026, the conference center would produce a $3.3 million surplus and the Commission Reserve Fund would reach $36.9 million.

But a year later, the balance in the fund would drop to $6.1 million. Reason: The conference center would pay off $30 million of its $55 million bond issue.

In 2028, conference center planners hope to live up to part of their promise to sunset the increased bed tax. The tax would drop from 5% to 4% per room night. Another half-cent would be sunsetted in 2042.

HOW WE GET A CONFERENCE CENTER

The following is the point-by-point outline of the Greater Sarasota Chamber of Commerce's presentation Monday, Jan. 31, to the joint meeting of the Sarasota County Commission and Sarasota City Commission.

Tim Clarke, chairman of a chamber conference center task force for more than two years, presented the details, along with planner Joel Freedman, architect Gary Hoyt and committee member Joe Gruters.

Meet the needs

of the target audience

• Must be within walking distance to full-service hotels, waterfront and downtown amenities ... "Attendees come to meetings to have fun."

• Have state-of-the art meeting features and technology.

• Be architecturally pleasant and impressive.

• Designed to serve the 'high end' meeting niche.

• Be a public facility.

Why does the

community need it?

• It lengthens the tourist season, bringing financial benefits.

• Stabilizes the tax base.

• Sustains tourism businesses.

• Closes the gap between 'haves' and 'have nots.'

• Strengthens our important tourism industry by diversifying its customer base.

• Aids emerging new economic development initiatives by providing a venue for emerging industry clusters.

• Adds an important public amenity.

• Would be a catalyst for development of the Cultural District.

• Cultural asset for the exchange of ideas.

• Brings patrons and customers to other arts venues in the area.

Managing concerns

"We have been very sensitive to the legitimate concerns that have been raised. We have tried to meet these concerns respectfully and honestly in the recommendations," Clarke says.

• "Is this really a priority for Sarasota?" It's part of a balanced community, Clarke says.

• "Why isn't there a private investor?" In most cases the return on investment isn't there.

• "Will a tax increase hurt business?" Not to a great extent, the committee says. Manatee County has a 4% bed tax, while it's 5% in Orlando. Plus the bed tax will be sunsetted once the building is constructed, Clarke says.

• "Are we taking land from public use?" Clarke says the proposal would actually improve public access.

• "What about the tenants who are already on this site?" They would be relocated under the proposal. Clarke says most are in antiquated buildings that are insufficient for their needs. Simply put, they may not want to move this soon, but they are likely to have to move eventually.

• "The TIF is up in a few years and are there other commitments for it?" Tax increment financing (TIF) funds would be used to construct the nearby parking garage. The committee has not estimated the cost of that construction.

• "How about traffic congestion?" Conference demand is typically highest when traffic is lighter in April-October. In addition, the plan also calls for constructing a service road to the Quay. In addition, many of the users are likely to use taxis from the airport.

Recommended building

• Location: northwest corner of U.S. 41 and Boulevard of the Arts. A 180,000-square-foot, single-story structure with approximately 100,000 square feet of "rentable" space; 50,000 square feet of exhibit space; 20,000-square-foot ballroom; 30,000 square feet of meeting rooms.

• Architecturally striking, with a large public plaza and rooftop park.

• Adjustable areas for conferences, exhibits and banquets.

• It would house the Sarasota Convention and Visitors Bureau.

• Adjoining covered walkways to the parking garage and the municipal auditorium.

Recommended

ownership/management

• Owned by a joint city/county public commission.

• Managed by a skilled contractor.

• Marketed by SCVB primarily because the SCVB can offer hotel-room blocks.

Recommended financing

• User-fee based; no ad valorem taxes.

• Land currently owned by city and in public ownership.

• Construction costs, including buying out existing leases, to be financed by bonding a temporary two-cent increase in the bed tax.

• Shared parking structure paid through TIF funding.

• Operations underwritten with proceeds from the Commission Investment Fund.

Potential Sales Tax

Rebate: A New Source

• Additional tax revenues. There's a bill in the Legislature that would permit convention and conference centers to keep 50% of every sales-tax penny generated in the confines of the centers. This was not figured in the proformas of the conference center.

Recommended timetable

• Form project team now to complete final protocol for the project

• Approve the project by Oct. 1.

• Form Joint Conference Center Commission authority by Dec 31.

• Enact tax increase Jan. 1, 2006.

• Complete design and permitting in 2006; initiate marketing efforts.

• Begin construction late '06 or early '07.

• Project opens November 2008.

County and city benefits

• Generate significant additional tax revenues without commensurate public services, thus easing pressure for ad valorem tax increases.

• Would increase the annual pay for workers in tourism and service industries, who are often among the lowest-earning job holders.

• Would attract high profile meetings and groups that could bring additional economic gain and visibility to the area.

• Would improve flights and fares to Sarasota airport.

• Will have a significant positive effect on the emerging vitality of the downtown.

• Will propel the collections of the rest of the bed tax, used for beach renourishment, the arts and marketing.

Recommended next steps

• Direct the administrations to form a project team of city and county staff with chamber committee members. This team would develop an action plan for project and timeline approval.

• Confirm the points of recommendations.

• Develop recommendations for structuring the Joint Conference Center Commission.

•. Develop the appropriate financing plans.

• Develop RFP's for all key project participants.

• Begin fair-minded negotiations with current site lease holders.

• Continue the public information program.

• Assist in lobbying for the tax rebate legislation.

HOW THE CONFERENCE CENTER WOULD BE FINANCED

County Scenario 2 for 100,000 sellable square footage and 200,000 overall square footage

Estimated Estimated Estimated Commission

Bed Tax Revenue Operating Special Operating Marketing Annual Debt FF&E Fund Earnings Fund Pre

YEAR 4th & 5th Cent Revenue Revenue*4 Total Revenue Expenses Expenses Service Depreciation Total Expnse Suplus/Loss at 3% Earnings

2004 $4,608,054 $0 $0 $0 $0 $0

2005 $4,792,376 $0 $0 $0 $0 $0

2006 $4,984,071 $4,984,071 $650,000 $650,000 $4,334,071 $4,334,071

2007 $5,183,434 $5,183,434 $650,000 $650,000 $4,533,434 $130,022 $8,997,527

2008 $5,390,771 $0 $200,000 $5,590,771 $0 $650,000 $1,688,268 $750,000 $3,088,268 $2,502,504 $269,926 $11,769,957

2009 $5,606,402 $4,106,960 $200,000 $9,913,362 $5,962,320 $596,232 $3,376,535 $750,000 $10,685,087 -$771,725 $353,099 $11,351,331

2010 $5,830,658 $4,271,238 $200,000 $10,301,897 $6,200,813 $620,081 $3,376,535 $750,000 $10,947,429 -$645,532 $340,540 $11,046,339

2011 $6,063,885 $4,442,088 $200,000 $10,705,973 $6,448,845 $644,885 $3,376,535 $750,000 $11,220,265 -$514,292 $331,390 $10,863,437

2012 $6,306,440 $4,619,771 $200,000 $11,126,212 $6,706,799 $670,680 $3,376,535 $750,000 $11,504,014 -$377,802 $325,903 $10,811,537

2013 $6,558,698 $4,804,562 $200,000 $11,563,260 $6,975,071 $697,507 $3,376,535 $750,000 $11,799,113 -$235,853 $324,346 $10,900,030

2014 $6,821,046 $4,996,745 $200,000 $12,017,790 $7,254,074 $725,407 $3,376,535 $750,000 $12,106,016 -$88,226 $327,001 $11,138,805

2015 $7,093,887 $5,196,615 $200,000 $12,490,502 $7,544,237 $754,424 $3,376,535 $750,000 $12,425,196 $65,306 $334,164 $11,538,276

2016 $7,377,643 $5,274,564 $200,000 $12,852,207 $7,657,400 $765,740 $3,376,535 $750,000 $12,549,675 $302,531 $346,148 $12,186,955

2017 $7,672,749 $5,353,682 $200,000 $13,226,431 $7,772,261 $777,226 $3,376,535 $750,000 $12,676,023 $550,408 $365,609 $13,102,972

2018 $7,979,659 $5,433,988 $200,000 $13,613,646 $7,888,845 $788,885 $3,376,535 $750,000 $12,804,265 $809,381 $393,089 $14,305,443

2019 $8,298,845 $5,515,497 $200,000 $14,014,342 $8,007,178 $800,718 $3,376,535 $750,000 $12,934,431 $1,079,911 $429,163 $15,814,517

2020 $8,630,799 $5,598,230 $200,000 $14,429,029 $8,127,286 $812,729 $3,376,535 $750,000 $13,066,549 $1,362,479 $474,436 $17,651,432

2021 $8,976,031 $5,682,203 $200,000 $14,858,234 $8,249,195 $824,920 $3,376,535 $750,000 $13,200,650 $1,657,584 $529,543 $19,838,559

2022 $9,335,072 $5,767,436 $200,000 $15,302,508 $8,372,933 $837,293 $3,376,535 $750,000 $13,336,761 $1,965,747 $595,157 $22,399,463

2023 $9,708,475 $5,853,948 $200,000 $15,762,423 $8,498,527 $849,853 $3,376,535 $750,000 $13,474,915 $2,287,508 $671,984 $25,358,955

2024 $10,096,814 $5,941,757 $200,000 $16,238,571 $8,626,005 $862,600 $3,376,535 $750,000 $13,615,140 $2,623,430 $760,769 $28,743,154

2025 $10,500,686 $6,030,883 $200,000 $16,731,570 $8,755,395 $875,539 $3,376,535 $750,000 $13,757,469 $2,974,100 $862,295 $32,579,549

2026 $10,920,714 $6,121,347 $200,000 $17,242,060 $8,886,726 $888,673 $3,376,535 $750,000 $13,901,933 $3,340,127 $977,386 $36,897,062

2027 *8 $5,678,771 $6,213,167 $200,000 $12,091,938 $9,020,027 $902,003 $0 $750,000 $10,672,029 $1,419,909 $1,106,912 $6,107,857

2028 $5,905,922 $6,306,364 $200,000 $12,412,286 $9,155,327 $915,533 $0 $750,000 $10,820,860 $1,591,427 $183,236 $7,882,519

2029 $6,142,159 $6,400,960 $200,000 $12,743,119 $9,292,657 $929,266 $0 $750,000 $10,971,923 $1,771,196 $236,476 $9,890,190

2030 $6,387,845 $6,496,974 $200,000 $13,084,819 $9,432,047 $943,205 $0 $750,000 $11,125,252 $1,959,568 $296,706 $12,146,464

2031 $6,643,359 $6,594,429 $200,000 $13,437,788 $9,573,528 $957,353 $0 $750,000 $11,280,880 $2,156,908 $364,394 $14,667,765

2032 $6,909,093 $6,693,345 $200,000 $13,802,439 $9,717,130 $971,713 $0 $750,000 $11,438,844 $2,363,595 $440,033 $17,471,393

2033 $7,185,457 $6,793,745 $200,000 $14,179,203 $9,862,887 $986,289 $0 $750,000 $11,599,176 $2,580,026 $524,142 $20,575,562

2034 $7,472,875 $6,895,652 $200,000 $14,568,527 $10,010,831 $1,001,083 $0 $750,000 $11,761,914 $2,806,613 $617,267 $23,999,442

2035 $7,771,790 $6,999,086 $200,000 $14,970,877 $10,160,993 $1,016,099 $0 $750,000 $11,927,093 $3,043,784 $719,983 $27,763,209

2036 $8,082,662 $7,104,073 $200,000 $15,386,735 $10,313,408 $1,031,341 $0 $750,000 $12,094,749 $3,291,986 $832,896 $31,888,091

2037 $8,405,969 $7,210,634 $200,000 $15,816,602 $10,468,109 $1,046,811 $0 $750,000 $12,264,920 $3,551,682 $956,643 $36,396,416

2038 $8,742,207 $7,318,793 $200,000 $16,261,001 $10,625,131 $1,062,513 $0 $750,000 $12,437,644 $3,823,357 $1,091,892 $41,311,665

2039 $9,091,896 $7,428,575 $200,000 $16,720,471 $10,784,508 $1,078,451 $0 $750,000 $12,612,959 $4,107,512 $1,239,350 $46,658,527

2040 $9,455,571 $7,540,004 $200,000 $17,195,575 $10,946,275 $1,094,628 $0 $750,000 $12,790,903 $4,404,672 $1,399,756 $52,462,955

2041 $9,833,794 $7,653,104 $200,000 $17,686,898 $11,110,470 $1,111,047 $0 $750,000 $12,971,517 $4,715,382 $1,573,889 $58,752,226

2042 *9 $5,113,573 $7,767,900 $200,000 $13,081,473 $11,277,127 $1,127,713 $0 $750,000 $13,154,839 -$73,366 $1,762,567 $60,441,427