by Joe Sullivan
Universe Knoxville clearly has the potential to become Knoxville's stellar attraction. A virtual reality planetarium, an affiliate of the Smithsonian Institution and a much-needed new children's museum represent the three legs of a stool that should be strong enough to support the $116 million in private funding that developers Worsham Watkins International envision for the undertaking.
An independent feasibility study by a renowned consultant, Harrison Price, projects that Universe Knoxville would draw 1.1 million visitors annually. Price's findings also substantiate the estimates of another consultant retained by WW that the attraction would generate annual revenues of $23.4 million. After estimated operating expenses totaling $13.3 million, there would be $10.1 million left—more than enough to cover $8.45 million in annual debt service on a $116 million bond issue. However, the bond underwriters with whom WW has been collaborating insist that this debt-service coverage ratio is not sufficient to secure the bonds.
To further secure the debt, WW has proposed that Knox County back the bonds with a limited guarantee of up to $2 million a year that would only be drawn upon if Universe Knoxville revenues fall far short of projections. But therein lies a problem.
According to leading local bond attorneys, the state constitution precludes a local government from backing the debt of another entity. Article II, Section 29 of the constitution provides that "the credit of no County, City or Town shall be given or loaned to or in aid of any person, company, association or corporation, except upon an election to be first held by the qualified voters of such county, city or town, and the assent of three-fourths of the votes cast at said election." Such a super-majority would appear well nigh unattainable.
When County Commission approved $200,000 in planning funds for Universe Knoxville last week, it reserved on any further financial commitment. But the resolution adopted by Commission does provide for the creation of a not-for-profit (NFP) corporation "acting on behalf of the county." The NFP's board of directors would be appointed by the county to oversee Universe Knoxville "pursuant to a turnkey Development-Management contract with WWI..."
The NFP might arguably be deemed an extension of the county. But John Arnold, an attorney with the firm of Robertson, Ingram and Overbey that serves as the county's bond counsel, stresses that "there should not be even a remote possibility of violating any constitutional provision."
County Law Director Mike Moyers says, "It's too early for me to comment because nobody has submitted a formal plan." (WW's bond guarantee proposal was presented to commissioners informally, but the resolution adopted by Commission contemplates, more generally, "credit enhancement provided by limited revenue commitments of the county or other acceptable commitments.")
"The reason we coughed up the $200,000 was to get them to the point where they could submit a plan," Moyers says. "Where there's a will to make it work, we will find a way."
Tom Ingram, president of the Knoxville Area Chamber Partnership, was initially vexed when apprised of the constitutional oversight. "I see very little will to do anything in this community," he fumed. Ingram, who led a hasty charge to get the resolution through Commission in April on a 13 to 6 vote that was much closer than the tally indicates, is now bent on getting final approval by August. After settling down, he allows that "these are the kinds of details that the four months are there to resolve. Nobody said we had all the answers."
Another concern in some quarters has been whether Merrill Lynch remains committed to the financing of WW's endeavors, including both Universe Knoxville and the downtown redevelopment plans now known as Renaissance Knoxville. According to recent trade press reports, Merrill is retrenching its involvement in public finance and laying off 29 investment bankers. Steve Coma, the Chicago-based banker who has been Merrill's point person on Renaissance Knoxville financing, is understood to be among those who are departing.
However, Robert Barber, the firm's co-head of public finance in New York, reaffirms Merrill's backing of WW's Knoxville projects. "We very much remain committed to working on these projects. We think they are viable and exciting projects where Merrill Lynch can add value," Barber says.
According to Earl Worsham, Merrill's point person on Universe Knoxville is Los Angeles-based Chris Makai, who is a specialist in the type of tax-exempt financing on the part of not-for-profits that is planned. Makai is due to be in Knoxville next week, and, "If we want Coma, they can engage him back," Worsham says.
Except for taking control of Market Square via condemnation, everything that WW is presently proposing looks worthy of support as far as yours truly is concerned. But an obvious lesson from this past month's experience is that haste can jeopardize that support. Moreover, Ingram's lobbying tactics alienated many commissioners, including several who ended up voting to go forward.
Universe Knoxville's boosters need to become more mindful of county government's processes in these crucial months ahead.
May 3, 2001 * Vol. 11, No. 18
© 2001 Metro Pulse
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