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Confusion clouds debate over performing arts center plans

If there was a headline to be written for all that was said this week over the city’s Performing Arts Center, and the petition to stop its financing, it would probably be “confused persons still confused; confusion ensues.”

In all likelihood, there is little that could be said in the space of a city council meeting, or any other venue for that matter, that would completely assuage the suspicions of either those who support the referendum effort or those who do not.

As is the case with many of the other financial issues the city tackles, the Performing Arts Center debate is itself a product of the natural growth of city government. As the resort grows, and the dollar figures increase, the stakes become higher – while the margin of return becomes lower.

These “problems of success” can be a good or a bad thing, depending on your viewpoint.

One of the key issues taken up by Tony Christ’s Ocean City Taxpayers for Social Justice – the group circulating the petition – is that, while the city’s bond issuance document states that the $8.3 million being borrowed for the center will be paid back using proceeds from the city’s food tax, another clause states that the city will levy an ad valorem tax if this funding is insufficient.

Simply put, the city will pay its construction debt with property taxes if it doesn’t have enough food tax money.

“It says that at least twice in the ordinance,” said opposition group supporter Ellie Diegelmann. “You can build the center all you want, just don’t make us pay for it when it comes up deficient.”

However, Mayor Rick Meehan – an ardent supporter of the center project – pointed out that there is no other way to issue the bond at the same cost.

If the town were to sell its debt as being entirely revenue-dependent, instead of simply supported by a specific user fee such as food tax, it would get a much less favorable interest rate.

“It has to be backed with the full faith and credit of the town,” Meehan said. “If it were approved as a revenue bond, the interest rate would be much higher.”

In other words, the only way to finance such a high-level capital improvement is to put up the city’s tax base as collateral. Not that it will actually come to this – the city’s food tax, which charges a half-percent on all bar and restaurant food sales – has reliability generated $1.2 million per year.

Further, the city has almost $7.4 million in unspent food tax revenue, which can only be used, per the city’s partnership agreement with the state, on capital improvements at the convention center.

“Since the money has proven to be there, why would we pay a higher interest rate?” Meehan asked rhetorically.

Unless someone has evidence that the restaurant industry will collapse in the next 10 years, there really is no reason to think that the city intends to gouge its taxpayers for the bill.

The reason anyone would oppose such a borrowing scheme, then, is out of principle. In that case, there is no magic number that will decide the argument, despite the insistence of both sides that the other get the right facts.

Those facts themselves are open to interpretation. The 2010 study done by Crossroads Consulting Services, as noted this week by Council Secretary Mary Knight, estimates $3.2 to $3.9 million of new spending in the resort as a result of the performing arts venue.

Direct revenue to the convention center, however, is estimated at $200,000 to $240,000 – a small dent in the $2.5 million operating deficit the convention center already runs.

This estimate further assumes, according to the study, that “the majority of event-related costs are passed through to the user and other fixed costs, such as staffing and utilities, are relatively minimal.”

The center, according to the study, should attract between 61 and 73 performances annually, with attendance between 45,700 and 55,050. This compares to the center’s nearly 400,000 attendee-days logged for the 2008-2009 fiscal year.

The bulk of these, 220,000, were the result of conventions and trade shows, of which 41 and 75 percent, respectively, used exhibit space that will be eliminated once the center is built.

Although the center has added an equivalent square footage in ballroom space upstairs, this is naturally unavailable to shows with exhibits that can’t fit in an elevator.

Again, as the scope of development grows, the guarantees become marginally less. But taking the plunge can be better than staying static.

“There will always be people who don’t want change,” said resident Nicole Hills. “There are people who look back on the time when the whole north end of town was a dirt road and say those were the good old days. But where would we be if most of Ocean City was still a dirt road?”

In the 1960s, the resort did indeed take a great risk by improving swaths of uninhabited land, with no absolute guarantee that a developer such as Jim Caine would come in and build taxable property.

Assuming, then, that one is philosophically okay with the idea of risk and return, the city’s decision to go ahead with the project is predicated on confidence that the community will make good on the more favorable of the projections given in the Crossroads study.

“When this first came before us, I was against it, but we put together a group of stakeholders who were interested and they came back very positively,” Councilwoman Margaret Pillas told Patti Miller of the city’s Cultural Arts Advisory Board, which recommended the project. “People like you and [Seacrets founder] Leighton Moore gave me the confidence to change my vote.”

 

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