Very interested in your thoughts on Utah County borrowing approximately $40 million to build a convention center in Provo. The Convention Center should largely pay for itself through rental rates, and should be a great place for conventions in Utah County that are now being held else where, thus substantially boosting business in Utah County. However, if revenues are insufficient to cover debt service on the convention center, then the bond is guaranteed by the tax on restaurants and hotels in Utah County, which should be sufficient.
Nevertheless, several concerns:
1. Tax increase? Government spending is frequently just a delayed tax increase. Because Utah County could be using the restaurant and hotel taxes to cover the debt service on the convention center, they will have less revenue to cover all other expenses, and thus may feel a need to allow property taxes to increase again. (They allowed the property tax rate to go up 8.5% in 2009.) On the other hand, the convention center could increase the revenue from restaurant and hotel tax in Utah County substantially, meaning even more tax revenue for Utah County.
2. Elimination of Restaurant tax? The debt on the convention center is guaranteed mostly by the restaurant tax paid in Utah County, and many of the restaurants will benefit substantially from the additional business the convention center will bring. HOWEVER, the Utah Restaurant Association is currently lobbying hard to get a bill passed this year in Utah that would eliminate the restaurant tax, but allow counties to increase their general sales tax to make up for it. In other words, we'd shift the cost of the convention center largely from the restaurants to the general tax payer. Note the restaurants in Utah County support the Convention Center, but also support eliminating the taxes that would potentially pay for the Convention Center! In other words, they want to "keep their cake and eat it too".
Deseret News article on the Convention Center:
http://www.deseretnews.com/article/705358118/Financing-in-place-for-Utah-County-convention-center.html
Financing in place for Utah County convention center
By Sara Lenz
Deseret News
Published: Tuesday, Jan. 12, 2010 8:48 p.m. MST
PROVO — Saying it couldn't have been better timed, Utah County Commissioners on Tuesday finalized plans to build a convention center in downtown Provo.
With the economy struggling and the federal government offering incentives to spend, Utah County locked down an interest rate of 3.89 percent on its $40.15 million worth of bonds issued for the convention center as of Monday. Without those conditions, the rate would have been closer to 6 percent or 7 percent, County Commissioner Larry Ellertson said.
"It's the culmination of a lot of work and effort and thoughts and ideas by a lot of people," Ellertson said. "This kind of puts the nail in the ground, so to speak."
There is speculation that the Federal Reserve will raise the borrowing rate later this month, so commissioners say they believe they finalized the project at the right time — even down to the date.
"The timing couldn't have been more perfect," Commissioner Gary Anderson said during a planning meeting Tuesday.
The county issued three types of bonds — tax-exempt bonds, Build America Bonds and recovery zone bonds — to various entities, including private health insurance and retirement fund companies, said Bryan Thomson, Utah County clerk/auditor. The bonds will be paid back over 30 years, with the total principal plus interest for Utah County at $69.75 million.
Thomson said the county was given a AA-minus rating in financial strength, which he said is basically saying to investors that the bond is a safe investment and has a low risk of failure.
While 90 percent of all municipalities' financial ratings went down with the economy, Utah County's did not. Thompson said he believes that's partly due to county commissioners' fiscal conservatism. Utah County has two-time coverage on all of its debt, he said.
Ellertson said the convention center will be paid for with Tourism, Recreation, Cultural and Convention Tax revenue, which has remained stable during the economic downturn. General sales tax revenue, on the other hand, has gone down in most cities.
Ellertson said the only drawback with the timing is that a proposal about the tourism tax is currently being debated by state legislators. The proposal is to eliminate the 1 percent TRCC tax and replace it with a .01 percent tax on all businesses across the board.
County commissioners met with architects Tuesday afternoon to go over design plans and discuss a timetable for construction of the convention center. Ellertson said construction should commence by the beginning of summer and take no longer than two years to finish.
The convention center is proposed to be built on 200 West, between Center and 100 North, near the Provo Marriott. It is planned to be three stories tall and 120,000 square feet, with a 20,000-square-foot exhibit hall and an 18,000-square-foot ballroom.
County officials also have plans to expand the center to more than double its planned size if the need is there in the future.
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