Weekly Update

Friends,

 

By now, I’m sure many of you have probably seen news of a debate at city hall about additional incentives for a proposed luxury hotel at Beale Street near Riverside Drive.

 

Typically, I reserve my comments on economic development projects until they are finalized, but occasionally the developer chooses to make those negotiations public. 

 

With regard to the proposed hotel, it is no doubt an exciting project, and I genuinely hope it happens. Hosting conventions and tourism is a large and growing industry in our city. With our newly renovated Renasant Convention Center and future dock expansion at Beale Street Landing, that future will be even brighter. 

 

Because of our commitment to growth, we have offered more incentives for the current proposal than any other development in the history of the city. We have offered:

• 30-year PILOT (Payment In Leiu of Taxes—required state approval)
• Up to a 5 percent surcharge on purchases on the property (rooms, food, beverages)
• Rebate of $2.25 of the $2.75 local option sales tax (remaining $.50 is required to go towards police and fire); created for the One Beale development and first time in city history
• City Administration recommended, and Council approved, a 50% backstop on the project bond debt (a maximum of $3.5 million per year for 30 years); first time in city history this has been offered.
• Offered additional $5 million low-interest loan to help close financing gap

[*Quick point of clarification on the use of the word “backstop”—in everyday language, think of it as cosigning onto a loan.]

 

The following is an email I sent to the city council yesterday along with a letter from the City’s financial advisors, PFM Financial Advisors, LLC.

 

Dear City Council members:

 

We have been working diligently for two days on the proposed new hotel at One Beale.  As you know, in April, we recommended, and you approved, a 50% backstop on the bond debt (a maximum of $3.5 million per year for 30 years).

 

On July 6, 2022, the developer informed our administration that he needs a 100% backstop (a maximum of $6.9 million per year for 30 years).  As you know, our financial advisors, PFM Financial Advisors, LLC, requested a delay in your vote, and the state comptroller expressed strong reservations. As a result, we advised you to delay your vote.

 

On July 12, I met with the development team. They estimated that the 50%-backed bonds would bring about $10 million less than needed and could go up to another $4 million less, for a total of a $14 million gap.

 

Today, we offered to loan $5 million to the developers to cover the gap.  The developer rejected that offer.

 

Also today, we asked several questions in writing to the development team, who has not yet responded to each one. We also spoke to the State Comptroller today, and his position has not changed.

 

Enclosed is a copy of PFM’s latest review, which raises many concerns.  I am certainly willing to continue the conversations and review of this important project and the City’s role.  At a minimum, for my consideration of any deal involving a higher percent guaranty or backstop, I will need to:

 

• Meet with our bond rating agencies
• Meet with the State Comptroller
• Review a calculation of the City’s debt capacity reduction

 

Currently, there is too much risk and too much uncertainty for city taxpayers to move forward at this time.

 

Thanks, Jim

 

While I have been mayor, I have always pushed incentives for economic growth that do not endanger our operating budget. That budget funds basic core services, such as police, fire, parks and roads. The current ask appears to put future operating budgets and future capital improvement projects at risk. That is something I cannot support, and I believe the majority of Memphians feel the same way.

 

Another trip to the White House: My team and I were recently contacted by the Biden administration about our successful and innovative uses of our American Rescue Plan Act allocation.

 

Because of those successes (and I wrote about them in my last two Updates here and here), Memphis was chosen from thousands of communities across the country to participate in a White House Summit on the American Rescue Plan and Workforce with Vice President Kamala Harris this past Wednesday.

 

 

It was an honor to be able to share what we’ve been able to do here in Memphis with other communities all across our country. Thank you to Ken Moody, Ike Griffith, and their talented teams within city government who are running our programs, which have now been nationally recognized.

 

The gift that keeps on giving: I’ve said many times that having St. Jude Children’s Research Hospital in our city is not only a gift to Memphis but to the rest of the world. With this week’s huge expansion announcement, they will continue to be leader on the research front and an economic powerhouse for Memphis.

 

The announcement included an additional $1.4 billion to St. Jude’s six-year operating and capital budget, bringing the total to a $12.9 billion investment. The expansion also includes raising the number of new jobs from 1,400 to 2,300, and increasing funds for construction, renovation and capital needs from $1.9 billion to $2.3 billion.

 

This is exciting news for St. Jude, its patients who benefit from its live-saving research and care, and for our city for the continued reinvestment in the Pinch District downtown.

 

Enjoy your weekend!

 

Yours,