The Cultural Facilities Task Force (CFTF)
presented to the Hamilton County Commissioners on June 23 a plan for renovating
Union Terminal and Music Hall, funded largely by $225 million in bonds to be
supported by a quarter-percent sales tax for 14 years. Commissioner Chris Monzel surfaced on August 6
an alternative (and subsequently adopted) plan calling for approximately $170
million to be provided by the same tax-rate increment over a period of just
five years. The Monzel plan calls for 76%
as much funding in just 36% as much time, without changing the tax rate. Clearly, the Monzel assumptions are more
aggressive than those from the CFTF. This
observer sees two key assumption categories that could account for the
difference.
Timing of expenses relative to funding
The CFTF program called for prompt selling of approximately $225 million in 14-year bonds in order to lock-in
current low interest rates. That would
have created a large bank account to be drawn down as renovation progressed
over four or more years. The Monzel plan
makes no mention of issuing bonds, and it’s hard to imagine that a five-year
sales tax duration would support anything close to $170 million in bonds, given
the expected coverage ratios and underwriting expenses. Applying the CFTF assumptions to a five-year
sales-tax probably leads to a bond issue not more than $100 million.
The factor that potentially bridges
the gap between funding plans is the timing of expenses. Union Terminal is not a shovel-ready project. It will require a lot of engineering before
the high-burn-rate field construction begins.
The CFTF projected that field construction would begin in 2016 or later,
and that it wouldn’t be completed until 2018 or later. It the sales tax boost were to start on
January 1, 2015, there would be four years of revenue collected by the end of
2018. If the Union Terminal renovation
team were told under the Monzel plan to manage its cash requirements to match
sales-tax proceeds, a program extension of as little as one year might get it accomplished
without any bonds at all. Monzel may
expect to see Union Terminal renovated on a fund-as-you-go basis.
Debt-service coverage ratios
The CFTF
funding plan called for a 150% debt-service coverage ratio, meaning that
debt-service obligations would be limited to two-thirds of the expected
sales-tax proceeds. That’s how the CFTF
projected that 14-year bonds could be called early and paid-off in nine
years. That plan could have left five
years of sales-tax revenues with no associated commitments. The CFTF never disclosed publicly any plans
for using or shutting-off those revenues, but I think it’s reasonable to assume
that the occupants of Union Terminal and Music Hall would have offered plans to
utilize some or all of the available funds.
In particular, Museum Center will need some not-yet-identified funding
to improve its exhibits, which have largely stagnated as Union Terminal has
faced an uncertain future. The five-year
Monzel plan apparently shuts off that potential funding stream, presumably at
some distress to the occupants.
Neither
side has been forthcoming about the detailed assumptions and schedules behind
the outline plans offered, so the foregoing includes some speculation. It will be interesting to see how the players
reveal their ideas as we move toward election day.