by Joe Sullivan
Among all the proposals being advanced for making Knoxville a more attractive destination, Universe Knoxville stands out by far. As anyone who has visited the Rose Center for Earth and Space in New York City can attest, what's being proposed here is a lot more than just a planetarium. A virtual reality space experience would offer three-dimensional voyages through solar systems and galaxies, and there would be a real time link to the new international space station.
If it moves quickly, Knoxville has the opportunity to be the only other city in the country offering such an experience. True, other cities can replicate it, but there is a big advantage to gaining the identity that goes with being first.
Worsham Watkins International has gotten a commitment from Merrill Lynch for the $116 million in financing needed for the new facility that would include a cluster of other museums. But this commitment is contingent upon a certain amount of governmental backing. The proposed backing would take the form of a guarantee of up to $2 million of $8.45 million in annual debt service on the $116 million bond issue. The bonds would be the obligation of a not-for-profit (NFP) entity that would be formed to operate Universe Knoxville, and the limited guarantee would only come into play to the extent that its revenues were insufficient to cover the debt service.
Because the city of Knoxville's plate is already full with financing its $162 million new convention center and, prospectively, up to $159 million more for downtown redevelopment, WW sought out Knox County for participation in the project. A commendable initiative on the part of County Commissioner Larry Stephens and the good offices of the Knoxville Area Chamber Partnership also contributed to steering it toward the county-owned site on State Street where ill-fated, if not ill-conceived, plans for a new jail have been aborted. That site would be leased to the NFP as part of the deal.
Before proceeding, WW retained Management Resources, Inc., the firm that manages the Rose Center for the American Museum of Natural History, to conduct a feasibility study. This study projects that Universe Knoxville would initially draw 1.1 million annual visitors and generate annual revenues of $23.4 million. After estimated expenses totaling $13.3 million, there would be $10.1 million to cover the $8.45 million in debt service. That leaves a $1.65 million excess and represents a 1.20 coverage ratio.
These findings have recently been confirmed, with slight variations, by an independent study conducted by a renowned, California-based consultant, Harrison Price. The Price study was commissioned by the Cornerstone Foundation, which has also been a primary backer of the Nine Counties/One Vision process. Price assumes three levels of visitation, ranging from 1.03 million to 1.24 million that he terms his low, planning and upscale models. The debt service coverage under each of them are 1.08, 1.23 and 1.37 respectively.
Under the proposal now before County Commission, any revenues in excess of debt service would be paid to Knox County. In the case of WW's projections, that means the county would collect $1.65 million in additional revenues. However, in order to satisfy a common financing standard of 1.30 coverage, any shortfall below that level would be held in escrow until the 1.30 ratio had been exceeded for three consecutive years—at which time all escrowed funds would be released and the county's guarantee would cease.
Again referencing the WW projections, $845,000 of the $1.65 million would be escrowed, leaving $820,000 a year for the county to use as it sees fit. In other words, if all goes reasonably well, Universe Knoxville would be a source of revenue to the county, not a source of expense. Since County Commission would appoint the NFP's board of directors, through whom the funds would flow, county revenue maximization would presumably be a goal.
Even if Universe Knoxville fell far short of expectations and the county's guarantee were called into play, it wouldn't hit county taxpayers in the pocket book. According to Finance Director Kathy Hamilton, the entire $2 million a year could be absorbed within the county's existing capital budget for at least the next five years without any need for a tax increase. Nor would any such outlays impinge upon funds available for schools or other county services. That's because the county's capital outlays are funded on a separate basis from its operating expenses. Indeed, schools would still come out better because any sales tax revenues generated by the project are dedicated to the school system's operating budget.
There is ample precedent for the county partnering with the private sector on ventures that promote tourism. For example, the county is on the hook for the entire $8.35 million that was borrowed to finance the Women's Basketball Hall of Fame but has yet to be called upon to make any payments on that debt.
For those who feel the public sector's participation should be confined to paying for supporting infrastructure, such as garages, it just so happens that $2 million equals the debt service on the $26 million, 1,750-space garage that would support Universe Knoxville. Funding a garage is exactly what Gatlinburg did to support its aquarium, and the Dwight Kessel Garage stands as a monument to County Commission's preparedness to fund downtown garages here.
Universe Knoxville is much more than a tourist attraction par excellence and an anchor for downtown redevelopment whose benefit will fan out to the Old City, Gay Street, Market Square and beyond. Together with the new children's museum that would be housed under the same roof, it also has a lot of educational value to the Knoxville area.
Under the resolution before County Commission at this time, commissioners are being asked to approve $250,000 for design work, along with a non-binding statement of intent to provide the limited loan guarantee, if they're satisfied with the fleshed-out plans. The $250,000 would be reimbursed from proceeds of the bond issue, assuming the project comes to fruition.
County Commission would be remiss not to go forward with Universe Knoxville at its meeting next Monday.
April 19, 2001 * Vol. 11, No. 16
© 2001 Metro Pulse
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