Fourth Street Live! Public Costs and Benefits 1

The Fourth Street Live! Entertainment District

Public Costs and Public Benefits

by Paul A. Coomes, Ph.D.

Professor of Economics and

Shaheer Burney and Barry Kornstein University of Louisville

July 30, 2012

his report was conducted on behalf of the Louisville-Jefferson County government and the Louisville Convention and Visitors Bureau to document the public costs and benefits of the Fourth Street Live! entertainment district in downtown Louisville. The City issued a

$13.5 million general obligation bond in 2001 and used the proceeds to acquire property and jump start the development with the Cordish Group. By 2004, the core block, 4th Street between Liberty and Muhammad Ali streets, was transformed to an entertainment district, packed with restaurants, bars, clubs, and assorted retail outlets. The area continues to evolve with new businesses and events, and seems likely to sustain itself for decades to come. In this study, we attempt to measure the various economic and fiscal benefits that are associated with the district. The main findings of our study are:

Public costs for the Fourth Street Live! project will amount to about $30.7 million over twenty years. This includes $19.6 million in debt service payments by the Louisville-Jefferson County government over twenty years, plus ten years of tourism sales tax credits granted by the Commonwealth of Kentucky.

The most direct economic benefit has been the 500 or so jobs at restaurants and clubs in the entertainment district, jobs that are expected to remain there for several decades. Moreover, the initial construction of Fourth Street Live! supported around 600 jobs during 2003. There are typically two dozen construction jobs in the district at any time, as the space is reprogrammed to meet changing customer demands.

The entertainment district has been an integral part of the strong growth in Louisville’s downtown hospitality industry over the last decade. Between 2004 and 2011, the number of hotel rooms sold downtown rose by 63 percent and the value of rooms sold rose by 112 percent.

T

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In terms of tax revenues received, Kentucky state government appears to be the biggest beneficiary, primarily due to its six percent tax on food and beverages in the district. Projected out thirty years, it appears that state government will collect about $58 million in taxes from activity in the entertainment district (net of the state tourism tax credits). We project that the Louisville-Jefferson County government will collect about $13.3 million in taxes from the district.

History of the project

Fourth Street Live! (FSL) replaced the old Louisville Galleria, which was constructed in 1982. The Galleria was essentially a downtown mall, with a glass roof covering 4th Street, and shops on six floors in the east and west buildings. The Galleria was built and owned by Oxford Properties, who also built two office towers, one each at the north and south ends of the shopping area. Oxford spent about $144 million on the whole development, plus carrying costs. By the mid-1990s, the Galleria was losing retail tenants, e.g., Laura Ashley and The Limited, and by the late-1990s it became clear that the business model would no longer work. Oxford was losing money, and sold the two office towers at a loss to raise cash. Bacon’s department store had a lease through the end of 2002, but most tenants were gone by then. By 2003, the only tenant left was a drug store. Then Mayor Dave Armstrong became involved in the late-1990s as he became aware that the space was losing tenants and the property owners were seeking an exit strategy. A detailed study by Ernst and Young documented the inevitable decline in the existing programming of commercial space, but also pointed to Louisville’s lack of a downtown entertainment district. Convention and economic development officials all saw the need for an entertainment district, both to give conventioneers something to do on foot and as a draw for young professionals in the region. Mayor Armstrong had the City of Louisville issue a $13.5 million general obligation bond in November 2001 to implement the deal he had negotiated with the Cordish Group for the development of the entertainment district. The City used the funds to purchase the Galleria buildings from Oxford for $4 million, to make grants and loans to Cordish, and to make infrastructure improvements in the block. Cordish programmed the refurbished

Fourth Street Live! Public Costs and Benefits 3

facilities, investing along with their tenants perhaps another $55 million, and opened FSL in June 2004. FSL has inarguably revitalized downtown, with large crowds of restaurant and bar patrons at night and a bustling lunch business daily in the block. The foot traffic into the area seems to have had a spillover effect in adjacent areas, particularly to the north where several new restaurants have opened over the past few years. As with all such projects, there has been some turnover of tenants. Borders closed its bookstore as part of its bankruptcy. Red Star Tavern closed in 2011, and several others have changed names and themes. However, each closing has been followed by reprogramming and new tenants. For example, the Borders bookstore site at the corner of 4th and Liberty streets just opened as a new brew pub. FSL projects steady investments by Cordish and tenants of $2-3 million per year over the next two decades, to modify structures as themes and venues change.

Public costs Both the City and the Commonwealth of Kentucky have directly or indirectly invested in the FSL project. As mentioned the City used the proceeds of a $13.5 million bond issue to acquire property and jump start the private investments. The City (the Louisville-Jefferson County government after the 2002 merger) is making debt service payments of roughly $1 million per year for twenty years, 2002 through 2021. FSL also qualified for the Kentucky Tourism Tax Credit program. This allows FSL to recover up to 25 percent of the project’s development cost over a 10-year term. Under the incentives, the Kentucky Department of Revenue returns to developers a portion of the state sales taxes paid by out-of-state visitors to the attraction. Also, as part of the overall tax credit deal, the City established a $3.5 million escrow account to be used in case FSL did not generate enough out-of-state business to take full advantage of the tax credits. So far, FSL has drawn down about one-third the escrow account, and City officials expect to use a total of $2 million over the life of the credit program. So, the total public costs are about $19.6 million from the City plus the sales taxes rebated by the State of Kentucky under the tourism tax credit program. These costs are spread out over the lives of the City’s 20-year bond issue and the 10-year state tax credit. The amount of state tax credits vary somewhat from year to year, ranging between $1.0 to $1.1 million so far. Given the history, a reasonable estimate is that the state will rebate around $11.0 million back to the developers over the life of the tourism tax credit program. Thus, total (undiscounted) public costs are likely to be about $30.7 million over the years 2002 through 2021.

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The general importance of downtown entertainment districts Why do city governments care so much about downtown entertainment districts? Why do they routinely invest in supporting infrastructure and the developments themselves, but rarely take the lead in hospitality and retail projects outside of downtowns? Some critics argue that these policies redistribute economic activity to the center of a city, leaning against market forces. The most vocal critics are often the owners of competing restaurants, bars and clubs, who feel they pay taxes to a city government that then subsidizes their competition. Here are the arguments we have heard for city government subsidy of downtown entertainment districts.

1. The suburbs will take care of themselves, since people will naturally go out to eat and shop close to where they live. Relatively few people live downtown, but the downtown is the heart of the region, and thus everyone in the region has a stake in keeping the center healthy. An entertainment district provides a synergistic reason to be downtown after the offices close during the week, and on weekends. If a strong agglomeration of restaurants, bars and clubs does not emerge organically, the local government should use its tools to make sure such a local draw exists.

2. Having a collection of scattered entertainment venues around downtown does not have the impact of a concentrated district of venues. Urban economists call this force “shopping externalities”, whereby the revenues and profits of a group of co-located firms are greater than if those firms were in disparate locations. The primary reason is that consumers like to shop around, and prefer to make a trip to a district with many options than many trips to isolated businesses. Much as customers like to shop at a mall with four or five shoe stores (typically lined up down one wing of the mall) than drive around to six scattered shoe stores, people looking for dinner, lunch, and entertainment prefer to make the trip to a place that has many choices. Once they park their car, they can walk around and decide which restaurant or club to patronize. Since most downtowns, like Louisville’s, have been around for two or three centuries and already have a built-up environment, it is a challenge to convert older buildings into an entertainment district. At a minimum, the city government needs to get involved in land use permitting, planning, streets, lighting, and other infrastructure. Often the city government will want, or need, to do much more, such as purchase property, demolish property, and provide financial incentives to developers.

3. All major cities have convention centers downtown surrounded by large hotels. The key to landing major conventions is to have a lot of hotel rooms within walking distance of the meeting and exhibit areas. Moreover, there needs to be something else to do on foot than go to a meeting hall. Prior to FSL, officials at Louisville’s Convention and Visitors Bureau had documented visitors’ concerns about lack of walkable entertainment. This was listed by downtown hotel customers as the number one deficit

Fourth Street Live! Public Costs and Benefits 5

in Louisville (today the concern is lack of retail outlets nearby). Conventions are much easier to attract if a city can promote (walkable) amenities other than hotel rooms and meeting space. It is probably not feasible to determine what conventions Louisville missed prior to FSL, or gained later due to FSL, but there is no question FSL is an important part of the package used in the competition for convention business.

4. Over the past fifteen years cities have increasingly tried to lure ‘young professionals’ to their markets. These mobile, well-educated, and creative people are seemingly the new economic development prize, as human capital has superceded physical capital in importance in the competition among cities. Young professionals are more likely than others to take advantage of an entertainment district. Moreover, they are more likely to live in flats, studios, apartments, and condos downtown. Having something to do on foot downtown makes it easier to succeed in the downtown living dimension, which then supports downtown retail.

Louisville is certainly not alone in nurturing a downtown entertainment district. We have scanned our peer cities to see what they offer. See table for a summary. Of our fifteen peer cities, only Greensboro appears not to have an entertainment district downtown. Birmingham and Indianapolis appear to have two each. One could argue that several of these developed organically, without explicit government policy. The Broadway-Second Avenue district in Nashville, and Beale Street in Memphis, are good examples where music-oriented clubs sprang up in older low-rise buildings downtown, drawing traffic that subsequently fed restaurants and retail. In Richmond, the Skockeo Slip district in the city’s old core dates back to the 1600s, and

Downtown Entertainment Districts

Louisville and 15 Peer Cities

City Entertainment District Attractions Developer Organic?

Birmingham Birmingham–Jefferson Convention Complex Convention, Sports, Music Bayer Properties No

Marketplace (Under Construction) Dining and Hotel Performa Entertainment Real Estate, Inc. No

Charlotte Uptown Entertainment District Nightlife, Dining Yes

Cincinnati Fountain Square Music, Arts & Culture, Sports 3CDC No

Columbus Arena District Music, Movies, Nightlife, Sports Nationwide Realty Investors No

Dayton Oregon Arts District Nightlife, Dining Downtown Dayton Partnership No

Indianapolis Massachusetts Avenue Nightlife, Dining, Retail Yes

Wholesale District - Georgia Street Arts, Entertainment, Retail Indianapolis Department of Public Works No

Jacksonville The Jacksonville Landing Nightlife, Retail, Dining Rouse Company, sold to Sleiman Enterprises No

Kansas City Power & Light District (KC Live!) Retail, Dining, Nightlife, Music Cordish No

Lexington Rupp Arena, Arts, and Entertainment District Sports, Art Space Group (Designer) No

Louisville Fourth Street Live Nightlife, Dining Cordish No

Memphis Beale Street Entertainment District Music (Blues) Yes

Nashville Historic 2nd Avenue Music, Nightlife Yes

Omaha The Old Market Omaha Art, Nightlife, Dining City of Omaha No

Raleigh Warehouse District Nightlife Yes

Richmond Shockoe Slip Art, Retail, Dining Yes

Fourth Street Live! Public Costs and Benefits 6

was revived as a dining and shopping area by private investors in the 1970s. Certainly, local government had to provide some infrastructure and basic city services to support these organic entertainment districts, but the districts emerged to meet a market demand without intentional government policy. Most of the entertainment districts listed are a result of government policy. In any case, the table makes clear that FSL is not an outlier; nearly every city has something similar. See Appendix A for descriptions of the comparable downtown entertainment districts. Louisville’s public investment in its downtown entertainment district is modest compared to at least two of those in comparison cities. Kansas City issued $295 million in bonds to support their Power & Light District, ten times the public exposure as Louisville. Birmingham issued $57 million in bonds for The Marketplace, with the debt service to be paid through an increase in the hotel room tax there.

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Economic benefits Some of the economic benefits of FSL are relatively easy to measure and some are very difficult to discern in publicly available data. Perhaps the most obvious such benefit has been the growth in business activity and jobs at restaurants and clubs, as compared to the essentially abandoned Galleria during the 2002-2004 period. We acquired data on jobs by industry in the FSL block over the 2002 to 2010 period, and show the results for the ‘Accommodations and food services’ industry in the next chart1. Since there were no hotels in the block, the data refer to restaurants and bars. Note that employment fell from 84 to 39 as the Galleria closed, and then moved to the 500-700 job range after FSL opened. (See Appendix B for information on jobs in other industries located at the north and south ends of the FSL block.)

There are no publicly available data on the wages and salaries of workers in the FSL block. The developer estimates that the entertainment district supported 725 FTE employees in 2011, with 1 The only publicly available job data at this small, block-level, geographic area is from the Census Bureau’s

Longitudinal Employment-Household Dynamics program (LEHD). Using its OnTheMap geographic interface, one can define a small area and have the program retrieve employment data by place of work or place of residence. The data are based on administrative records, primarily unemployment insurance filings by employers and social security records on employees. The program only provides data back to 2002. It covers almost all types of firms and employees, but does exclude federal government workers and self-employed persons.

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Jobs at Restaurants and Bars, Fourth Street Live block

Source: US Census Bureau, Longitudinal Employment-Household Dynamics program, using On The Map interface.

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an annual payroll of $28.3 million. This implies an average annual wage of $38,000. The annual payroll number is an estimate, not an accounting figure, since each business establishment in the district handles its own employment and payroll and there is no centralized accounting. Their estimate of payroll is probably a bit high, but we do not know how high. The average restaurant job in Jefferson County paid about $13,000, according to the last economic census report for Jefferson County (see table). However, the jobs reported in the economic census are mainly part-time, and are not adjusted to a full-time equivalent basis. And the FSL establishments are likely to have higher sales and payroll activity than the Jefferson County average.

While clearly there are now 500 or so more jobs in FSL block restaurant and bars, it is a contentious issue of whether those jobs are ‘net new’ to Jefferson County or the greater Louisville regional economy. Some have argued that these new downtown entertainment outlets have simply displaced spending that would have occurred elsewhere, for example at the former Coyote’s downtown or along Bardstown Road, Frankfort Avenue, or in St. Matthews. It is beyond the scope of this report to resolve this question with any precision. Even if spatial displacement of spending has occurred, it seems clear that some of the growth in restaurant and bar activity downtown is due to nonresidents, people that would not normally find the neighborhood venues known by locals. Special events at FSL, such as music concerts or the recent pole vaulting competition, draw visitors from hundreds of miles away. On weekends, one can see license plates of cars from Lexington, Owensboro, Cincinnati, and Indianapolis – primarily 20-somethings who come into downtown Louisville for entertainment.

Perhaps a more important source of new dollars to the Louisville economy is the convention and general hospitality business. FSL has been an important part of the draw that has lifted downtown’s hospitality volume over the last decade. Prior to FSL, exit surveys of conventioneers and convention planners revealed that visitors could find little to do in downtown other than go to their meetings. They wanted a concentrated area within a few blocks of their hotel where they could walk to a good selection of restaurants, clubs, and ideally other general shopping. The typical downtown conventioneer or visitor does not want to spend

NAICS Code Industry Description

Business Establishments

Jobs (part-time and full-

time)Sales per

Establishment

Payroll per

Establishment

Jobs per Establish

mentPay per

Job722 Food services and drinking places 1,459 32,020 $935,544 $278,500 21.9 $12,6907221 Full-service restaurants 487 14,705 $1,155,745 $383,400 30.2 $12,6977224 Drinking places (alcoholic beverages) 122 1,093 $466,205 $99,221 9.0 $11,075Source: US Census Bureau, 2007 Economic Census

Restaurant and Bar Statistics for Jefferson County, Kentucky

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all their time searching for entertainment options around the region. Moreover, they do not want to take their car out of the hotel parking garage, navigate the city, and return to the garage. They want to walk out the front door of the hotel and head to a nearby and clearly defined district containing several dining and entertainment options. FSL has clearly satisfied that specific need for downtown hotel guests.

The existence of the entertainment district has in turn helped the Louisville Visitor and Convention Bureau attract more conventions and room-nights in downtown. The accompanying chart shows the recent history of hotel room sales downtown. There is a clear acceleration in number of rooms sold and the value of room sold beginning around 2005. Indeed, according to room tax data compiled by the Louisville Revenue Commission, between 2004 and 2011 rooms sold downtown rose by 63 percent and the value of rooms sold rose by 112 percent. The red bars show the annual number of rooms sold, rising from less than 600,000 mid-decade to over 900,000 by the end of the decade. The blue line shows the value of rooms sold, with the scale on the left axis. One can see that the value rose from about $55 million to $118 million annually between 2004 and 2011. This growth is even more impressive when one recalls that there was a serious recession during 2008-09, one in which the hotel business

623,900 600,059

645,383

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Room

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Hotel Room Sales in Downtown Louisville

Source: Louisville Metro Revenue Commission.

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nationally suffered. For the United States as a whole, rooms sold fell by 2.5 percent in 2008 and 6.2 percent in 20092. And the Census Bureau reports that sales and employment in the ‘Traveler accommodations’ industry fell in 2009 and again in 20103. Comparing Louisville’s downtown hotels to the national business, it appears the Louisville had much stronger growth during the 2005 to 2008 period, but was hit by the recession in 2009 by a similar proportion as the US as a whole. Both the US and Louisville’s downtown hotel business seem to have bounced back strongly after the recession.

It is impossible to know precisely how much of this growth is due to FSL. There were major investments in hotel facilities downtown last decade, resulting in nearly 1,600 more rooms, and with increasing amenities and prices. These include the new 600-room Marriott in 2005, which is situated between the convention center and FSL. About 80 percent of the rooms added were traditional short-term stay rooms, most typically used by conventioneers and travelers. The other new rooms were for extended stays.

Our judgment is that the FSL and hotel projects have supported one another, and that the strong growth in downtown convention business and room-nights sold would not have occurred without the entertainment district. Conversely, the entertainment district would not have been as successful without the new hotel capacity. This is a qualitative statement; it is not feasible to determine quantitatively the contribution of FSL to the growth in the hospitality business. Certainly, the Louisville Visitor and Convention Bureau believes the entertainment district is important to landing conventions, as they feature FSL in their marketing materials – advertising campaigns, their Convention Meeting Planner Guide, and in magazine placements. Also, the downtown hotels list FSL prominently on their web sites, using the nearby entertainment district as way to lure visitors. The Springhill Suites web site even goes so far as to call itself the “most convenient of 4th Street Live hotels”4.

As context for the general discussion of Louisville’s hospitality industry, we have organized public data on employment at hotels, restaurants, arts, recreation, and entertainment

2 See PWC report, Hospitality Directions US: Hospitality and Leisure, June 2012: www.pwc.com/en_US/us/asset-

management/hospitality-leisure/publications/assets/pwc-hospitality-directions-q1-2012.pdf 3 See The 2012 Statistical Abstract, Table 1266, by US Census Bureau,

www.census.gov/compendia/statab/cats/arts_recreation_travel.html 4 See www.marriott.com/hotels/hotel-information/travel/sdfsd-springhill-suites-louisville-downtown/

Year Opened Rooms

Courtyard 2000 140

The Marriot 2005 600

Hampton Inn 2005 173

Residence Inn 2005 140

The Galt House 2005 130

21 Century 2006 90

Fairfield Inn 2008 122

Springhill Suites 2008 198

New Hotel Rooms in Zip Code 40202

Fourth Street Live! Public Costs and Benefits 11

establishments in Jefferson County KY as compared to our peer city central counties. This is provided in Appendix B. We calculate employment on a per capita basis, to filter out the impacts of locals eating out and going to events. Overall, Jefferson County KY has been performing around the middle of the pack of competitors over the last decade.

Finally, there has been a significant number of construction jobs associated with FSL. The development company reported there were about 630 workers involved in the original construction in 2003, with an annual payroll of $22 million. And because of continuing re-programming there are on average about 25 construction jobs associated with the project each year.

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Fiscal benefits In this section, we organize what we have learned about tax revenues associated with the FSL development. We have made estimates of the amount of property taxes, occupational taxes, net profits taxes, and Kentucky state sales taxes paid to date. And we have projected these out to 2031 so we can get a feel for thirty year tax stream relative to the public costs that have been incurred.

The next chart summarizes those estimates, distinguishing among the primary jurisdictions that receive the tax dollars. The irregular pattern in the first few years is due the impacts of construction, where for example the state of Kentucky received substantial sales taxes on the purchase of construction materials, and all the governments received tax payments related to the wages of construction workers. The jump in annual revenues starting in 2015 is due to expiration of the Kentucky tourism tax credit. As is evident from the chart, the state of Kentucky receives the biggest portion of the tax revenues, primarily due to its six percent sales tax on food and beverage sales in the entertainment district. Over the thirty years considered, we estimate that Kentucky state government will receive $58.0 million in tax revenues, the Louisville-Jefferson County government will receive $13.3 million, Jefferson County Public

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Estimated Public Revenues Associated with Fourth Street Live!by Jurisdiction

KY State government

TARC

Jefferson Public Schools

City-County

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Schools will receive $8.6 million, and the Transit Authority of River City (TARC) will receive $1.8 million. The total amount to all jurisdictions over thirty years is $81.6 million. After 2011, of course, these tax revenue estimates are based on assumptions about growth in sales activity, jobs, pay, and real estate values. The primary assumptions used are as follows:

1. Taxable retail sales at FSL were about $33 million in 2011, the decline from $36 million in 2010 due primarily to the closure of the Borders bookstore. We assume an annual growth rate of one percent going forward. One can see from the chart that nationally sales at restaurants and bars have been growing in the four to five percent range annually, with the large dip in 2009 due to the recession. However, this reflects faster population growth nationally than in Louisville. Moreover, according to public data, there was no net growth in taxable retail sales at FSL between 2005 and 2010: it has fluctuated in a tight range around $36 million annually. So, it seems prudent to use a lower sales growth rate than we observe nationally.

2. Similarly, we use an annual growth rate of one percent on the real estate taxes paid to local and state governments by FSL properties. The entertainment district generated $217,000 in property taxes in 2011. This is up significantly from the $61,000 paid before FSL opened, but over the last few years property tax payments have fluctuated up and down as properties have been reassessed. Currently, land in the entertainment district is assessed at $8.7 million and real estate improvements are assessed at $7.5 million. These assessments are revisited regularly, to reflect changing market conditions, particularly in the commercial real estate market. The commercial real estate market has been soft the past four to five years, resulting in some downward assessments at FSL. It seems likely the market will return to modest growth in values over the horizon.

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Growth in Retail Sales, Food Services and Drinking Places, United States

Source: US Census Bureau; sales were $494 billion in 2011.

Fourth Street Live! Public Costs and Benefits 14

3. For payroll-based taxes, we use the job projections of the FSL managers and assume a one percent annual increase in average pay. The managers project that FTE employment will peak at 750 jobs by 2012. They estimate that the average pay for restaurant, bar, and retail employees was $30,000 when FSL opened, and we let that pay grow by one percent per year. We have no way to confirm that FSL actually supports 750 FTE employees. The Census Bureau data shown in the section above on economic benefits reflect 500 to 600 jobs in restaurants and bars, and these are a mixture of part-time and full-time. However, FSL has employed some people in other industry sectors, like retail (pharmacy, bookstore), administration, and security.

4. The FLS businesses are also liable for the Louisville-Jefferson County net profits tax. The tax rate of 2.20 percent is actually a combination of rates to three jurisdictions: County (1.25 percent), Transit Authority of River City (0.20 percent), and Jefferson County Public Schools (0.75 percent). The tax is applied to the net taxable income of the establishments. There are no data publicly available on the net income of the companies operating in FSL. We assume net taxable income is ten percent of retail sales, and apply the rates for the different jurisdictions. This may be too high or too low. A helpful web site of a consulting firm reports that the industry average for a restaurant’s income statement reflects 26 to 36 percent cost of goods, 30 to 40 percent payroll and benefits, 7 to 12 percent operating expenses, 5 to 10 percent occupancy expenses, 1 to 5 percent administrative expenses, and 0 to 19 percent earnings before interest, taxes, depreciation and amortization5. The latter category includes taxable net income, along with other items, and is a big range. Restaurants that serve alcohol will have higher profit margins than those without alcohol.

We are not able to say how much of these tax revenues would have been received by the government jurisdictions had FSL never been developed. Certainly, some of the restaurant and bar activity that generated the state sales taxes and local occupational taxes is a displacement of sales that would have occurred elsewhere in Jefferson County or Kentucky. We do not have sufficient data or tools to determine the magnitude of the displacement. On the other hand, FSL needs to be given some credit for the strong growth in downtown hotel sales over the last decade. Transient room tax receipts from downtown hotels were $8.8 million in 2011, compared to just $4.2 million in 2004. These revenues go to fund the Louisville Convention and Visitors Bureau, the Kentucky International Convention Center, and the Kentucky Center for the Arts.

5 See http://consulting.dloewi.com/analyzing-restaurant-income-statement

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Appendix A Description of Downtown Entertainment Districts in Peer Cities

Birmingham, AL – Birmingham Jefferson Convention Complex (BJCC), The MarketPlace

The BJCC, constructed in 1976 at a cost of $104 million, houses a convention center, sports arena, concert hall, theatre, and an entertainment complex, and adjoins the 759 guest room Sheraton Birmingham Hotel. In FY09 the facility generated $41.5 million in revenue, held 966 events, and recorded attendance of 1.1 million visitors. The BJCC covers an entire block and is juxtaposed with Interstate Highway 59. The Marketplace, currently under construction, is a hotel and entertainment district adjacent to BJCC being developed by National Ventures Group to support the convention business. The project will include a 303-room Westin Birmingham Hotel and space for about 20 restaurants, nightclubs, retailers and other tenants. Total cost of the project is estimated at $70 million, $57 million of which will be financed through the issuance of public bonds by BJCC Authority and will be backed by an extension of the city’s existing 14% lodging tax for 30 years. The competitive advantage of BJCC comes from providing convention halls, hotel space, and entertainment within the same block in the heart of downtown.

Charlotte, NC – Uptown Entertainment District

The entertainment district in uptown Charlotte started developing in 1995 when a collection of locally owned clubs decided to create an entertainment hub. Concentrated around Seventh and College streets, the district is composed of numerous bars and nightclubs in close proximity to each other. What makes the district unique from others is that it was built without attachment to any big chain or publicly financed tourist attraction. The entertainment district has managed to attract young professionals to spend time uptown after 5 p.m., despite failure of previous efforts by others. About seven blocks up the street from the Charlotte Convention Center and only three blocks from the Time Warner Cable Arena, the entertainment district is at a convenient location and had encouraged the growth of bars and nightclubs close by.

Fourth Street Live! Public Costs and Benefits 16

Cincinnati, OH – Fountain Square

Revitalized in 2006 by the Cincinnati Center City Development Corporation (3CDC), Fountain Square serves as a downtown gathering place through music, arts and culture, and sports events held periodically in the district. The total cost of the renovation was $48.9 million, including $44.9 million funded privately through the corporate community, bank loans, the State of Ohio loan and investments from Cincinnati Equity Fund and Cincinnati New Market Fund, the two private, corporate-funded loan funds. Only $4 million invested in the project was public money, contributed in the form of a grant. The renovation has resulted in the investment of nearly $125 million in additional private dollars around the Square and in the Fountain Square District. The square covers four blocks and is owned by the city of Cincinnati. Located adjacent to the Duke Energy Convention Center, Fountain Square was an ideal venue for an entertainment district.

Columbus, OH – Arena District

The Arena District was created in the late 1990s and is centered on the Nationwide Arena, home of the National Hockey League’s Columbus Blue Jackets. Previously designated a brownfield area, the district used the creation of the Nationwide Arena in 2000 as impetus for redevelopment. The City of Columbus contributed to the creation of the Arena District by providing tax abatements, demolition, environmental work, and infrastructure improvements. The net cost to the City for the infrastructure improvements was

approximately $36 million. The district was developed and is managed by Nationwide Realty

Fourth Street Live! Public Costs and Benefits 17

Investors in partnership with the city. Between 1999 and 2008, the assessed value of property per square foot in the district increased by 267% compared to a 22% increase in all of the downtown 43215 Zip code. The Arena District is a mixed-use development, combining entertainment venues including a hockey arena; new baseball park; amphitheater; movie theater; over 1 million square feet of commercial class A office space; restaurants and bars; apartments and condominiums; green space; and parking garages. Overall, the Arena District has attracted over $1 billion in investments, including $262 million that has gone into the block that contains Nationwide Arena.

Dayton, OH – Oregon Arts District

Developed in 2008 by Downtown Dayton Partnership, the Oregon Arts District covers 2 blocks and hosts a number of dining, nightlife, and other entertainment venues. The creation of the district is based on the notion that effective use of the arts can be a catalyst for economic

development. Therefore, the district showcases a conglomeration of art galleries presented by local artists, along with a mix of restaurants and night clubs. To fund the redevelopment, the city of Dayton contributed $850,000 to invest in parking and infrastructure improvement while $250,000 was donated by a local philanthropist to subsidize rent to make space affordable for businesses moving into the area. In return, artists and business owners were

made responsible for meeting very specific criteria for ensuring long term sustainability. Participating building owners also agreed to provide affordable lease structures with long-term options that are compatible with keeping space affordable to artists into the future. The Oregon Arts District is located one block away from the Dayton Convention Center.

Indianapolis, IN – Massachusetts Avenue

Known as the Arts and Theatre District, five performing arts theatres along with numerous art galleries and independently owned restaurants operate within Massachusetts Avenue. The district contains a blend of both commercial and residential properties and is a nightlife haven for young professionals. Mass Avenue is located just a few blocks from Monument Circle, the

Fourth Street Live! Public Costs and Benefits 18

heart of Indianapolis’ downtown, and approximately three miles from Indianapolis’ convention center. The district is one of the six designated cultural districts in Indianapolis.

Indianapolis, IN – Wholesale District (Georgia Street)

The Wholesale District is in the center of downtown Indianapolis and covers the area including Monument Circle and the Lucas Oil Stadium. The district contains more than 85 restaurants and 20 nightspots. Since 1995 the district has attracted more than $1 billion in investments resulting from inflow of new businesses and a series of renovation projects. Within the Wholesale District, Georgia Street has emerged as the city’s thriving entertainment district. In 2011, the Georgia Street Improvement Project led to the reconstruction of three blocks of Georgia Street, converting it from a four-lane street with curbs, gutters, and parking along the sidewalk to a two lane curbless street. Improvements included wide pedestrian facilities in front of buildings, a pedestrian mall in the median, a new convention venue, better infrastructure, and aesthetic appeal. The goal of improving Georgia Street was to support the entertainment industry around Lucas Oil Stadium. Now, Georgia Street's three-block street and walkway connects the Indiana Convention Center, Bankers Life Fieldhouse, Circle Center mall, a collection of restaurants, residences, hotels and the historic St. John's Church. Georgia Street was developed by Indianapolis Department of Public Works and was revitalized at a total cost of $12.5 million, 80% of which was covered through the procurement of federal funding and the 20% difference was filled by a local match. The City has engaged Indianapolis Downtown, Inc. (IDI) as the Georgia Street manager. The City of Indianapolis retains ownership of the street and is a key partner. Generated revenues will be dedicated to Georgia Street operations.

Fourth Street Live! Public Costs and Benefits 19

Jacksonville, FL – The Jacksonville Landing

Originally developed in 1987 by Rouse Company, the Landing covers 5 blocks and is a shopping and dining complex in downtown Jacksonville. The Landing has 126,000-square-feet of space and is a U-shaped pavilion on nine acres fronting the St. Johns River. The Landing was built at a cost of $32 million and was sold to Sleiman Enterprises in 2005 for $5 million. In 2010, the Jacksonville City Council agreed to contribute $3.5 million toward Sleiman’s purchase of a parking lot in the vicinity of the Landing. By daytime, in addition to dining and entertainment, the Landing acts as a hub of retail. After hours, the main attraction becomes the various nightclubs and bars located in the district. The Prime F Osborn III Convention Center is located about 4 blocks away from the Landing.

Kansas City, MO – Power & Light District (Kansas City Live!)

The Power & Light District is a dining, shopping and entertainment district in downtown Kansas City. It was developed through a public-private partnership between Kansas City and Cordish

Company at a cost of $850 million and was designed by Beyer Blinder Bell and 360 Architecture. To finance the development, Kansas City directed future sales and property taxes in the district to pay back the $295 million in bonds that the city issued for the project, which went toward infrastructure and to directly support the development. In the event

Fourth Street Live! Public Costs and Benefits 20

there weren't enough taxes, the city agreed to pick up the difference. Construction of the Power & Light District started in 2005 and was completed by 2008. The district covers 9 blocks and comprises of about half a million square feet. The district is located between the Convention Center and the Sprint Arena and includes more than 50 restaurants, bars, shops and entertainment venues. Kansas City Live! is located in the heart of the Power & Light District. It is a one block area dedicated to live music and entertainment venues similar to Fourth Street Live! Recently, due to shortfalls in revenue generated by the district, the city has had to set aside $12.8 million in its budget to cover the 30 percent gap of what is needed to cover the debt service on the bonds. Lexington, KY – Rupp Arena Arts and Entertainment District

Development of the Rupp Arena Arts and Entertainment District is currently in the planning stage. The project includes the renovation of Rupp Arena, the building of a new convention center, and an entertainment district in downtown Lexington to provide visitors of the Rupp Arena an avenue for dining and nightlife. The district is to be designed by Space Group and the total cost of the project is estimated to be $260 million. The financing plan for the project is yet to be determined. The concept of the district originated from the belief that considerable synergies exist between the Rupp Arena and the Convention Center that can be exploited to revitalize Lexington’s downtown.

Memphis, TN – Beale Street Entertainment District

Beale Street comprises of four blocks of entertainment venues in downtown Memphis. The main driver of Beale Street’s entertainment is blues music. Beale Street developed a brand

name as a hub of blues music between 1920’s and 1940’s when several blues and jazz legends, including B. B. King, played at Beale Street and helped develop the sub-genre of blues music called Memphis Blues. In 1977, Beale Street was

Fourth Street Live! Public Costs and Benefits 21

officially declared Home of the Blues by Congress. In 1983, Beale Street was redeveloped by Elkington & Keltner (now Performa Entertainment Real Estate) which led to its economic revitalization at a time when several businesses had shut their doors in the wake of economic downturn. The developers were awarded a 52 year lease that included stringent requirements for quickly recruiting tenants and achieving other specified goals. However, in 2011 John Elkington, the man credited with the redevelopment of the Beale Street Entertainment District, agreed to transfer management of the district to the City of Memphis. Nashville, TN – The District

The District is a conglomeration of three entertainment districts in downtown Nashville: 2nd Avenue, Printer’s Alley, and Broadway. The three districts are located adjacent to the Nashville

Convention Center. The District features a collection of bars, nightclubs, live music venues and art studios and galleries. Although the entertainment districts grew organically with Nashville’s local music at the forefront, in the 1980’s a collaboration called The District was initiated between Historic Nashville Inc. and the

Metropolitan Historic Commission. With the program aimed at synergizing efforts to further develop the three districts, the Metropolitan Development and Housing Agency provided a three year block grant of $30,000 per year as seed money to fund the startup of the District organization. Omaha, NE – The Old Market

The Old Market is an arts and entertainment district featuring fine dining, shopping, corporate meeting facilities, hotel accommodations, night life, and sought-after real estate. The district, then comprised of former light industrial and warehouse buildings and wholesale jobbing houses, served as the distribution center for a variety of goods shipped on the Union Pacific Railroad and its branch lines all the way to the west coast. The city has spent nearly $2 billion in new construction and development, including the $291 million Qwest Center Omaha, a new 40-story First National Bank Building, a riverfront university campus for the world-renowned Gallup

Fourth Street Live! Public Costs and Benefits 22

Organization, and a National Park Service Regional headquarters building for Union Pacific. The district was developed in the 1980’s using city funds and private equity from relocation of headquarters into the area. The City of Omaha also offered property tax incentives to attract big name companies like ConAgra to relocate their headquarters to Old Market. Arts and entertainment venues have sprung up along the district and are regularly populated by business professionals after hours. Raleigh, NC – Warehouse District

This 5 block entertainment was the city’s railroad and warehouse distribution hub from the 1850s to the 1950s. Characterized by its red brick warehouses, the Warehouse District has transformed into a mix of restaurants, specialty shops, and antique stores. It’s slower pace and quiet environment are a stark contrast to the neighboring Fayetteville Street District, but the district’s confines come alive after dark as the restaurants and clubs open their doors to patrons and entertainment seekers. The district is home of the Contemporary Art Museum and one of downtown’s proposed commuter rail stations. Also notable in the Warehouse District are its handful of establishments that cater to alternative lifestyles. The Warehouse District is located only 3 blocks from the Raleigh Convention Center and two other downtown districts. Richmond, VA – Shockoe Slip

Shockoe Slip is an entertainment district in downtown Richmond featuring art, retail and dining. The Slip was redeveloped as an entertainment and commercial district in the 1960s and 1970s when a group of entrepreneurs and architects sparked revitalization in the area. This came shortly after the passage of liquor-by-the-drink law in Richmond. In 1972 the district was added to the National Register of Historic Places. The result was an inflow of restaurants and bars in Shockoe Slip. Although the growth of Shockoe Slip as an entertainment district was natural, the City of Richmond has recently started revitalization efforts to enhance the district’s development. Public investments, coupled with the State’s successful historic tax credit program, have stimulated extensive new private investment, particularly in residential development, resulting in combined public and private investment of more than $1 billion in the past 15 years.

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Appendix B Other Industry, Jobs in the Fourth Street Live Block

Of course, there have been other (non-entertainment) industries present in the FSL block for decades. The next chart uses more data from LEHD to show jobs in the restaurant and bar industry, along with jobs in other industries. The large decline in the category called ‘Manufacturing’ is due to the loss of the Brown and Williamson headquarters located in the office building on the northeast corner of 4th Street and Muhammad Ali. The company’s employment gets counted under manufacturing because its primary revenues are from tobacco products. The loss of approximately 400 jobs at Brown and Williamson happened independently of the transition from Galleria to FSL. Across all industries, the number of jobs fell from 3,022 to 2,734 over the period shown. Note that the number of total jobs in the ‘Professional and business services’ category has remained fairly constant, at around 1,200 employees, reflecting the stability of non-B&W activity in the two office towers on the block. The FSL businesses were the only source of job growth in the block over the last decade.

0

200

400

600

800

1,000

1,200

1,400

1,600

2002 2003 2004 2005 2006 2007 2008 2009 2010

Jobs by Industry, Fourth Street Live block

Source: US Census Bureau, Longitudinal Employment-Household Dynamics program, using On The Map interface.

Professional and business services

Manufacturing

Restaurants and bars

Administration and support, waste mgmt

Retail Trade

Fourth Street Live! Public Costs and Benefits 24

Appendix C Hospitality Industry Comparisons

Jefferson County KY to Fourteen Peer Central Counties We include here some public data on jobs and payroll in the hospitality industry for Jefferson County KY and some comparison central counties. These data do not prove or disprove anything about the contribution of FSL, but rather provide context for the more general discussion of the relative health of Louisville’s hospitality industry. All data are from the US Bureau of Economic Analysis, using their NAICS-based industrial classifications available for the 2001 to 2010 period. In the first chart we measure employment per capita in the accommodation and food services industry, and construct an index to reveal the growth in each central county. We divide by each county’s population, so as to filter out the local demand for restaurants and events. A county with strong growth in per capita employment is likely to be selling to an increasing number of nonresidents. Jefferson County KY ranks near the center of the counties. The hotel, restaurant and bar industrial category supported 36,100 jobs in 2001, rising to 38,600 in 2008, and falling back to 37,900 in 2010. Jacksonville (Duval County FL) is the clear leader over the period, with a growth from 31,100 to 40,300 during the decade. Davidson County TN (Nashville) gave up 17 percent of its per capita employment, presumably due to the closure of Opryland.

80

85

90

95

100

105

110

115

120

125

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Accomodation & Food Services Employment per Capita IndexJefferson County, KY and 14 comparison central counties

United States, US

Jefferson, AL

Duval, FL

Marion, IN

Fayette, KY

Jefferson, KY

Jackson, MO

Douglas, NE

Guilford, NC

Mecklenburg, NC

Wake, NC

Franklin, OH

Hamilton, OH

Montgomery, OH

Davidson, TN

Shelby, TN

Henrico, VA

Source: US Bureau of Economic Analysis

Fourth Street Live! Public Costs and Benefits 25

A related industrial category is ‘Arts, Entertainment, and Recreation’. This includes museums, performing arts groups, sports venues, and the like. Typically, this industry only accounts for 20 to 25 percent of the number of jobs as the hotel and restaurant industry just discussed. But it provides another indicator of the health of the overall hospitality industry. If employment is rising faster than population this suggests that the county is selling more art and recreational services to nonresidents.

Again, Jefferson County tracks in the middle of the peer central counties, at least through 2009. According to BEA, the arts, entertainment and recreation organizations in Jefferson County lifted employment from 9,400 to 10,700 between 2001 and 2009, but gave nearly all the growth back in 2010. This decline is presumably due to the closure of Kentucky Kingdom. The fastest growing counties were Duval FL (Jacksonville), Mecklenberg NC (Charlotte), Shelby TN (Memphis), Wake NC (Raleigh), and Davidson TN (Nashville). Franklin OH (Columbus) has lost about ten percent of its per capita employment, while Marion IN (Indianapolis) lost about six percent.

90

95

100

105

110

115

120

125

130

135

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Arts, Entertainment, & Recreation Employment per Capita IndexJefferson County, KY and 14 comparison central counties United States, US

Jefferson, AL

Duval, FL

Marion, IN

Fayette, KY

Jefferson, KY

Jackson, MO

Douglas, NE

Guilford, NC

Mecklenburg, NC

Wake, NC

Franklin, OH

Hamilton, OH

Montgomery, OH

Davidson, TN

Shelby, TN

Henrico, VASource: US Bureau of Economic Analysis