Metro Pulse/Insights/Renaissance Knoxville

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by Joe Sullivan

For the first time in memory, an outright reduction in city expenditures for the fiscal year ahead is expected in the budget Mayor Victor Ashe unveils today (April 12). A 2.5 percent pay raise for city employees and other modest increases are more than offset by a $2 million savings in pension outlays resulting from a pension fund restructuring approved by voters in a referendum last November.

So where does that leave funding for the city's heralded downtown redevelopment plan now known as Renaissance Knoxville? In limbo, it would seem.

In February, the Public Building Authority's chief, Dale Smith, recommended a $20 million first installment on city outlays that could total up to $159 million to support a comparable commitment on the part of developers Worsham Watkins International. When Ashe held a March 8 public hearing on the PBA's recommendations, the expectation was that he'd be making his own recommendations within 30 days, presumably for inclusion in his budget. But now the mayor is saying that his RK recommendations won't be forthcoming until after City Council has acted on the budget in early May.

"We can only do one thing at a time," Ashe proffers. But more than a can't-walk-and-chew-gum-at-the-same-time problem appears to be at work here. The truth is that city officials are hung up on what to recommend and when to venture forward in relation to a swirl of cross-currents that surround the undertaking.

"I don't know that we have enough information to take [the PBA's] conceptual budget and say that's what we need to spend," says the city's finance director, Randy Vineyard. Among the uncertainties that abound are where, if not how, to site a much-needed new convention center headquarters hotel and other problematic elements of WW's grand design including an office tower, a cineplex and a destination attraction on the World's Fair Site. Meeting parking needs for several prospective downtown residential developments and for revitalization of Market Square are also part of that complex equation. So is skirmishing over whether Market Square redevelopment should be handed over to a master developer, as proposed by WW, or left to its present property owners, as sought by their Market Square Association.

"A wait-and-see approach on Market Square is the prudent thing to do," Vineyard contends. "That's probably disappointing to people on both sides, but we're hopeful they will reach a consensus."

Further complicating the picture is the uncertain status of the downtown Holiday Inn Select. The city's on again, off again negotiations to acquire the hotel are back on again. This time around, Smith, on the city's behalf, is negotiating directly with the Holiday Inn's owner, Franklin Haney, whereas previous negotiations had primarily involved lawyers on both sides. A stumbling block had been the convoluted terms of a city bond issue proposed by Haney to pay for the hotel. Through what sounds like financial alchemy that heightens Haney's reputation as a wheeler-dealer, the bonds were supposed to cost the city little more than the $13 million it had budgeted for the acquisition while yielding Haney close to his $25 million asking price. But the city's bond attorney, Mark Mamantov, nixed such a deal on grounds that it smacked of a tax dodge and wouldn't pass muster with the Internal Revenue Service.

If the city and Haney reach agreement on a more straightforward set of terms, then the Holiday Inn would be shut down and the property converted to some other use. This, in turn, could enable WW to proceed with its original plans for a new 417-room Marriott Hotel, whose financial feasibility depends on the Holiday Inn going poof.

In the meantime, though, WW has become increasingly frustrated by delays in getting city backing for any of its private development plans. "I have abandoned the project until we hear from the city," proclaims Earl Worsham. He also spurns Smith's contention that an office building targeted for the block to the west of Market Square could be supported by surface parking, at least until the addition of either a hotel or a cineplex consume more space on the block and create more demand for a garage. "If the city doesn't build a garage, we're not going to build an office building," Worsham grumps. He also lashes out at John Elkington, whose Memphis-based firm, Performa, Inc, has been portrayed as WW's Market Square subdeveloper. The source of his ire is a statement attributed to Elkington in the News-Sentinel that he doesn't have any agreement with WW. "When one of your partners whom you've trusted betrays that trust, you have very little regard for that person's character," Worsham vents.

In response, Elkington says, "I deeply regret that Earl is misinformed...I'm going to be submitting a comprehensive Market Square redevelopment plan to the city within the next few days and Worsham Watkins' name is mentioned prominently throughout. We'll work something out together."

Seemingly impervious to all of this, Ashe insists that, "Phase One of the private development plan is what I will concentrate on." But he's elusive as to what "Phase One" includes. Under what's referred to in some official circles as the "bookend approach" it starts with Market Square on the East and the Victorian Houses and Candy Factory on the West. An assessment of the cost of rehabbing blighted buildings tops the list of outlays that might get included in the city's budget. But even if the entire $9 million recommended by Smith for Victorian House and Candy Factory renovations plus $4 million for upgrading utilities on Market Square got funded, it wouldn't have that much of a budgetary impact. The reason is that instead of treating these outlays as expenses, they would constitute capital improvements on which only the interest expense on money borrowed to pay for them would show up in the budget.

The bookend approach, however, leaves a gaping hole in the middle. What's most missing is money for designing, if not starting construction, of garages to support Market Square and a new hotel. As the prime mover behind the city's $162 million investment in a new convention center, it's hard to believe Ashe wouldn't include infrastructure investment needed to make it successful in his definition of "Phase One." A festive Market Square and an amenity-laden headquarters hotel both fit this profile and will benefit Knoxville in other ways as well.