CACI makes plea for fiscal sanity
Council during retreat asked to justify projects with revenue

In his remarks, O'Connor parrots the citizens view that costs for projects should be able to demonstrate equal or better than offsetting revenue to finance them.

O'Connor puts on paper more than $1 billion worth of pending projects, but can't document much offsetting income.  Most businesses require a reasonable return on investments.  Council has not reached that stage yet.

The council adjourned without completing the workshop and will resume the meeting next Saturday in the Virginia Marine Science Museum.  The meeting is open to the public.

O'Connor's full presentation follows:

Council, you seem to lurch from one major tourism-related project to another. Unfortunately, there is no specific plan to identify either the final form envisioned by council or the total cost or estimated revenue from all of the projects.

During the last few years, council has spent approximately $220 million on several projects. The beautification of three miles of Atlantic Avenue cost $42 million - $14 million per mile; the Hurricane Protection Plan cost $148 million and was followed by Big Beach at $30 million.

None of those projects actually produces revenue. At best the projects may encourage a few more tourists to come to Virginia Beach or to return some day.

In addition to the projects completed, council is pushing the voter-rejected 31st St Project, and is considering the following projects: a new convention center, a new theater, beautification of the 19th St. corridor, and various other beautification projects for streets adjacent to the new convention center. And as for Rudee Loop - who knows?

We should note that only the 31st St. Project and the new convention center may generate even a small amount of tax revenue.

Council has not developed a business plan or a financial plan to show the taxpayers exactly what to expect over the next few years. Therefore, we request that council develop a business plan and a financial plan for all the tourism-related projects currently under consideration. We need to know the "whole picture" including total costs and estimated potential revenue before you go further with these projects.

In the business plan, special attention should be paid to the risk assessment section. Council must be forthright in stating the risks in terms of financial risks to taxpayers when revenue is less than estimated. This is especially important because the beautification projects are not revenue-producing projects.

Attachment 1 is an outline of a business plan.
Attachment 2 is a list of projects and capital costs as we see them.

Attachment 1

Sample Tourism Development Business Plan Outline

Executive Summary

State the mission to be accomplished by a Tourism Development Plan. How is this is to be accomplished: by building the 31st St Project, a new convention center, a new theater, and a new design for the 19th St corridor and by the beautification of a number of adjacent streets?

Identify the anticipated results. For example, identify the expected net return from the 31st St. project, the convention center, a new theater and the beautification projects.

State the capital requirements. We estimate approximately $1 billion. (Reference Attachment 2.)

Marketing Analysis

Identify the target firms. Will these targets be in the financial condition that permits convention attendance? Research is needed to show that a 

sufficient number of companies will come even under the current stressful economic conditions. When the economy does turn around, how many firms will be much more strict about spending money for junkets to conventions?

Will the new convention center be too expensive for the shows currently frequented by locals?

The consultant's report (1) states on page 42 that "there is a limited amount of convention class hotel rooms proximate to the Pavilion as compared to other comparable and competitive facilities. This may prove to be a disadvantage in attracting high economic impact professional associations." This concern is emphasized on page 83 of the report; "As past users have indicated, the hotel proximate to the Pavilion has not met the requirements of many convention and trade show users."

The consultant's report states that a successful convention center should have a headquarters hotel adjacent to the convention center and convention class hotels proximate to the center.

 The 31st St hotel is much too far away to function as the headquarters hotel and only one hotel is close enough to qualify as a convention class hotel.

(1) Virginia Beach Market, Financial, and Economic Impact Analysis - PricewaterhouseCoopers

Specify how these shortcomings will be overcome and that both the 31st St. Project and the new convention center will return revenue to the taxpayers.

Finance

The consultant's report states, on page 99, a clear warning regarding operating expenses for a convention center. "Increasing competition among destinations, as well as among competing facilities within a single destination, for visitor spending has resulted in public subsidies for operating expenses as well as debt service on capital costs."

The report identifies, on page 100, sources of funds. The convention center should be "paid completely (or mostly) by nonresidents." Further, "Ideally, those who benefit financially from the development would pay, in proportion to their benefit, to finance the center."

Identify the hotels, restaurants, retail establishments and retail amusements that will benefit from a new convention center and specify the funds to be paid by each to build the center.

Identify the source of funds to construct all these projects. Specify which taxes you will increase. Will you divert funds from other needs to satisfy these projects? Or will you eventually bankrupt the city with excessive spending on tourism projects?

Conclusion

The conclusion must answer, without equivocation that these projects should/should not proceed at this time. The business plan must evaluate the current business environment slowdown and determine whether that will restrict the number of firms planning to spend scarce dollars on conventions and convention attendance. The conclusion should identify the funds that are or will be made available for all projects and specify the tax revenue to be returned to the taxpayers.

Council must assure the citizens that proceeding is economically justifiable or that the projects should be delayed until a more auspicious time.

This attachment (shown below) details the numerous proposed construction projects and their costs.