Omni economic incentives facts

(Originally posted on June 30, 2019. The next day, the Mayor announced changes to certain TIF loans that impact this post, and a reader helped me with some details. I updated the post on July 1, 2019.)

During this election season, a lot of incumbents and candidates are talking about the Music City Center and Omni Hotel financing. I have spent a ton of time working to figure out the facts, but haven’t had time to get them collected for you. This is the first of at least two posts to try to provide some basic facts.

I’m going to start with the Omni Hotel, which received two three types of incentives — a tax increment financing, or TIF, loan and a property tax abatement and an annual development agreement payment. Let’s look at both these.

Tax increment financing loan

For the basics of how TIF works, you can:

The Omni Hotel was awarded a TIF loan of nearly $62 million in 2011. The property tax increment collected from nearly 20 other downtown properties is pledged to pay for the Omni TIF loan. Because of the property tax abatement we’ll talk about below, the Omni doesn’t pay any all of its property taxes itself at this time. Instead, its TIF loan is paid solely from the property taxes of these other properties.

According to a Nashville Business Journal article, the loan balance by 2012 had been reduced to about $54 million. Except for media reports, I don’t have data about the loan balances before 2016.

In early 2016, the current Council passed legislation requiring extensive annual TIF reporting. So, starting then, I can use data from those reports. According to MDHA’s annual reporting…

In 2015, the tax increment collected to pay the Omni TIF loans was approximately $6.6 million.

As of September 30, 2016, the outstanding Omni TIF loan balance was about $48 million.

In 2017, the tax increment collected to pay the Omni TIF loans was up to approximately $11.4 million for the year.

As of September 30, 2018, the outstanding Omni TIF loan balance was down to about $30 million. The MDHA reports are dense and hard to get through, but here is a summary of their data for tax increment collected in 2017 and the balance as of September 30, 2018.

With the loan balance around $30 million and the tax increment collected from the supporting properties over $11 million per year, these loans should be paid in full within several years.

NOTE: On July 1, 2019, the Mayor announced certain changes that will extend how long it takes to payoff the Omni TIF loans. Instead of using the $11.4 million in collected tax increment to pay the loan as quickly as possible, MDHA is getting a one-year waiver to pay only interest and a modest principal payment. This will significantly reduce the payment on the Omni TIF loans and allow $7.5 million of tax increment to be used for MNPS salaries instead. In turn, this will extend how long it takes to fully repay the loans.

Property tax abatement

In addition to the large TIF loan, the Omni received a 20 year property tax abatement that runs through December 31, 2030. This means that the hotel does not have to pay any property taxes until 2031.  Under the abatement, the hotel pays 37.5% of the regular taxes that would be due.

As a member of the Metro Audit Committee, I asked Metro’s auditors to list the value of all property tax abatements in the annual audit. In the most recent audit, the value of the Omni property tax abatement in FY18 was $2,282,645.

So while Metro will be able to keep the full property taxes from the 20 or so properties that are supporting the Omni’s TIF loan in just a few years once the loans are paid, Metro won’t receive any will only receive 37.5% of the regular property taxes from the Omni itself until 2031.

Development Agreement Payments

According to the Metro audit, there was a development agreement signed in 2010. I’m quoting the description from the audit:

On October 19, 2010 the Convention Center Authority (the Authority) entered into a Development and Funding Agreement with Omni Nashville, LLC (Omni) to facilitate the development of a premier headquarters hotel adjacent to the Music City Center. Under the terms of the development and funding agreement, the Authority will pay Omni annual economic development payments and incentives from excess tourism tax revenues collected…The amount remitted to Omni during the year ended June 30, 2018 was $12,000,000. The schedule of future annual payments is expected to be as follows:

2019-2026: $ 12,000,000 per year
2027-2033: $15,000,000 per year

These are big numbers. But it is worth keeping in mind how bad the economy was back in 2010. I’m told that another major hotel chain won the RFP, but couldn’t get financing. That ultimately led to the Omni Hotel deal. In hindsight, it is easy to argue that maybe the city or the Convention Center Authority should have owned the hotel instead of committing to these payments. But in 2010, there was no appetite for that risk because the economy was so bad.

Takeaways

Here are my takeaways about this information:

  • If you want to quantify the property tax impact from the Omni deal, the most recent numbers are that the Omni deal cost Metro about $13.6 million in FY18. That’s $2.2 million of  property taxes never received from the Omni because of the abatement, and about $11.4 million of taxes from the other properties that were used to pay the Omni TIF loan. Apparently, due to the newly announced deal, in FY20, things will be different because $7.5 million of these dollars will stay with Metro.
  • If you want to quantify the benefits received from the Omni deal, you cannot really do this because Nashville has never seriously attempted to reach a consensus about how to measure the benefits from economic incentives. If I get re-elected later this summer, figuring out a consensus way to measure the benefits will be a major objective.
  • If MDHA keeps using all of the tax increment from the nearly 20 other downtown properties, the Omni TIF loans should be paid approximately by the end of 2021. If that happens, because of legislation passed by this Council in 2016, ALL of the property taxes from those approximately 20 other properties would go permanently to Metro instead of being used for development loans. (NOTE: As of today’s announcement this won’t happen. While Metro will get to keep some of the tax increment dollars to run the city, that in turn will extend how long it will take to pay off the Omni TIF loans.)
  • There is something important to watch for in the upcoming year. There is a relationship between these numbers and the Mayor’s proposed parking modernization proposal. The Mayor and MDHA may attempt to refinance some of these TIF loans to allow more money to flow back to Metro. Of course, that would stretch out how long it will take to pay the loans. This point may be stale now. Instead of using TIF money to cover for the parking deal, the Mayor is pushing that toward education salaries.

I hope this post helps people understand the economic incentives provided for the Omni Hotel. In my next post, I’ll tackle the financing for the Music City Center. Please let me know any thoughts or questions.

Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.