Too good to be true?
New projections on the amount of hotel/motel taxes, which local officials plan to use to pay down the $23 million in bonds for the civic center project, have been drastically scaled back.
Initial figures put together by investment banking firm Merchant Capital forecasted a $19.9 million surplus from hotel/motel taxes by 2040. The bonds, which will be taken out by the county and city of Covington, were projected to become revenue neutral (or to stop running at a deficit) by 2021.
After the initial projections were presented to the Covington City Council and the Newton County Board of Commissioners in August, some members of the community with backgrounds in finance and mathematics became skeptical of the projections saying they painted an overly optimistic picture of what would happen over the next 32 years.
Jerry Bouchillon, a former attorney for the city of Covington, told the Covington City Council on Monday that the initial projections are “too good to be true.”
He took issue with several factors in the projections, including the forecasted hotel room occupancy rate and the average rate of hotel rooms in the county. Bouchillon said the projec- tions also assumed there would be no further increase in construction costs of the project or construction delays. Any delays in the project would likely increase the amount of interest that must be paid on the bonds.
Bryan Huske, vice president of Merchant Capital, said the initial projections were put together after his firm sought information from “various professionals involved” on average and expected hotel occupancy rates and hotel room rates.
After their initial projections were questioned, Merchant Capital revisited their initial projections and came out with two new sets of figures, both of which significantly downsized the tax revenue forecast.
In their ‘moderate’ case scenario, the bonds do not become revenue neutral until 2029 and the total surplus from the taxes by 2040 is only $400,000. An in-between ‘aggressive case-revised’ scenario shows the bonds not becoming revenue neutral until 2025 and running a total surplus of $8.6 million.
“We’re really just trying to run different scenarios to keep both government bodies informed as best as possible,” Huske said.
Above) A concept drawing shows what the interior of the theater of the civic center will look like upon completion. (Below) A concept drawing shows what the interior of the theater of the civic center will look like upon completion.