Let’s talk about today’s Word on the Street column:
Critics of publicly financing a Downtown hotel have linked last year’s City Council vote to extend $39.3 million in bonds for the $102 million Marriott with this year’s budget reduction decisions.
Some council members are fighting back, saying the criticism is unfair and inaccurate. They say the bond issue for the hotel project has nothing to do with next year’s budget deficit, or with the budget in general.
This ought to be good. I can’t wait to hear how $39.3 million has nothing to do with the budget.
“There is a misperception being promoted that the city has $39 million in the bank and is giving it away to a private developer when that is just not the case,” at-large City Councilman Ryan Spain said.
Oh, no. I know the city doesn’t have $39 million in the bank. That’s precisely the point. The city is going to have to go $39 million in debt to give $39 million away to a private developer.
At-large City Councilman Eric Turner agreed. “It doesn’t impact anything,” he said.
By “anything” here, I’m assuming he meant it in the context of the 2010 budget. And this may shock you, but I don’t disagree with him in that assessment. It won’t impact anything in 2010. But it will certainly impact the budget in 2012 and beyond. But I suppose that’s irrelevant, eh? Why look past the end of your nose when making decisions, right?
Linking this year’s deficit-related decisions, such as cutting police officers, with last year’s hotel project vote has been done at times during council meetings and on blogs.
He’s talking about me here, in case you didn’t catch it.
At-large City Councilman Gary Sandberg has brought up the issue before, saying the priorities of the council are screwed up. He said he has received calls from constituents concerned with why the city is assisting a developer build a hotel at a time when police officers may be laid off.
If the city wanted to assist the developer by improving public infrastructure around the site, that would be one thing. It’s quite another thing to just hand over cold hard cash to a developer to help him construct his project.
At issue is the city’s public financing portion of the project.
The city’s bond will be paid back through revenues generated by the project, including tax-increment financing and additional hotel, restaurant and sales taxes it generates.
“Revenues generated by the project.” That assumes revenues will be generated, which is a point of contention. Private banks, whose loans would have to be repaid through revenues generated by the project, have not been willing to loan the developer the money he needs to start the project, despite all this backing from the city. What do they know that the city doesn’t? Or is it just that the city is content to take higher risks with taxpayer money than banks are willing to take with their private funds?
Also, not explicitly mentioned in this statement is the fact that the council raised sales taxes 1% within the Hospitality Improvement Zone. Why was this necessary if “revenues generated by the project” are sufficient to pay back the bonds?
Projections show the city is to owe $2.5 million in 2012, the year the hotel is anticipated to open. The opening date likely will be pushed back because of delays in moving the project forward.
Not mentioned is the reason for the delays: inability to get private financing.
If the revenue from the project doesn’t materialize as anticipated, it is possible the city can make its bond payments from revenues from adjoining tax-increment financing districts (the hotel project is located within a TIF district, a key economic incentive device allowing the project to potentially happen).
City officials have estimated that about half of the $39.3 million can be raised from three adjoining TIF districts and directed to a fund that is separate from the city’s general operations fund, which pays for police, firefighters and other services.
If other TIFs are so flush with cash, why don’t they use that money to retire those TIF bonds early so the tax revenue go into the city’s general operations fund where they could pay for “police, firefighters and other services”? Wouldn’t that be a better use for those funds than on a hotel?
Recently retired Economic Development Director Craig Hullinger said the project “shouldn’t have a negative impact on the budget. It creates jobs and a tax base. That’s the logic for doing this.”
That’s what they said about MidTown Plaza.
Spain said the timing is right for the project. The hotel, when completed, would connect to the Civic Center via a skywalk.
And that’s relevant because…? I’m unclear whether these are just two disjointed statements the reporter decided to put in this paragraph, or if he’s implying that the skywalk was Spain’s justification for “the timing [being] right for the project.” If the latter, I have to believe there was more to his reasoning than what was reported. No one would say that a skywalk is justification for giving a developer $39.3 million in tax money. No one would be that foolish.
Project naysayers may have another chance to publicly sway the project. If developer Gary Matthews gets the financing needed to proceed, then the council will have to vote on the sale of bonds in order to officially participate in the financing of the project.
Matthews is still attempting to secure the private financing to begin a project that was originally supposed to start last spring. A national economic recession, though, has slowed the progress. (J.S.)
Yes, the recession is slowed progress, because the economic climate makes this project too risky for credit markets. But not too risky for our tax dollars, according to Mr. Spain and Mr. Turner. After all, we won’t have to pay the piper for several years, so it’s all good.
It would be one thing if the debt obligation to be issued was Revenue Bonds — then the project would sink or swim on its own merits.
As I recall, the bond debt will be general obligation bonds — ie: not enough revenues from the project itself or sales tax or rolling the TIF revenues from another TIF — then the taxpayer will pay the tab via property taxes to pay the general obligation bonds — correct? The interest rate will be lower so I guess taxpayers should be turning somersaults at that great news?
Pay as you go —- simply so passe and so old-fashioned.
Oh C.J., why are you so negative?
Can’t you see the people streaming into downtown to stay at our new hotel and visit our new museum?
Anyone know what Midtown cost the taxpayers now that cubs is gone and little if any money is paying off the tif? But COP will explain that away and press on with the hotel tif. When will the Tif’s end???
Marty: Perhaps the Midtown TIF is not adjacent to another TIF so that the ‘extra’ money from another TIF could be rolled to the Midtown TIF to pay off the TIF debt! TIFs never seem to end because they can be extended …………………….
Of course, public bodies are more interested in taking risks. It’s OPM. As an elected official, I know. GOB’s put the public at great risk. Also, expect if the hotel is built, two hotels will fold.
Here again, I’ll take bets.
…but, where will all the people visiting the museum stay…?
Here’s the comment I left on the Journal Star’s website:
Ryan Spain grasps at straws for justification for “economic development” “economic development” “economic development.” But it’s not real free enterprise principles at work. It is councilmember gets developer sweet deal with taxpayers at risk.
I guess if we let this “timing is right” period we are in pass us by, a skywalk won’t be possible. The timing is right because we can have a skywalk? Or can we have skywalk because the timing is right? What exactly makes the timing right?
Better yet, we should let uncertain economic times pass us by before we commit to more taxpayer economic development that coincides with with a councilman’s job in economic development.
Make sense?
I run a local hotel. And here is what I see.
I have mentioned before about Peoria, we are losing corporate meetings to the Embassy Suites in East Peoria. We need an attached hotel to the Civic Center to recapture some of that lost business.
The attached hotel may generate 4 or 5 new conventions that stay 3 to 5 days each convention. This new hotel will need to find business travelers to fill 40 + weeks each year when they do not have conventions. Most new full service hotels have a turn key cost of $250,000 per room just to construct them. Our biggest employer, CAT, keeps their negotiated rates by and large below $100 a night (most of their rates are in the $70’s). The pierre has trouble achieving 50% occupancy on good months. Scary.
Rebates and tax receipts are not what they have said they are. Did you know that the three week long rollers sports event in July, cost us money? We raised our city room tax .5% so we could put up $250,000 to pay for the US Roller Sports association to host the event. The hotel rebates did not come close to recovering the quarter million our Tourism Reserve fund put up.
Bottom line, we will not draw very many conventions, because bigger cities have more money to put up to sponsor events (and our fund is depleted). Our city sponsored hotel will only fill a few more weeks out the year by the few conventions we do get. It will need to draw travel from our biggest employer who will not pay high rates (again keeping profitability marginal at best).
I do have one question: if the developer/owner does not show a profit, do they not have to service the debt that year?
Well, the councilmembers are right to a point…one has nothing to do with the other. However, what pisses people off is that the council will not go to the same lengths to adequately fund police, roads, etc. as they will for private developers. Hand the museum and hotel millions by going into debt, but won’t do the same for police, roads, etc. Maybe if crime is reduced, the inner city is cleaned up and D150 gets better, people wouldn’t leave, more would move in and taxes generated from this would pay for itself….unlike Midtown, PCC, Gateway, etc.
Mitch asked: “if the developer/owner does not show a profit, do they not have to service the debt that year?”
I checked with Councilman Sandberg, and he said: “The answer is NO. The Pere deal is not a loan or anything that requires any form of repayment.
IT IS A GRANT!!!!!!!!!!
All he has to do is build it and he is entitled to the money. If he closes it down 1 day later and never rents a room let alone make a profit there is NO REPAYMENT requirement for the developer to pay 1 cent.”
Thats just fantastic. Capitalism at its finest.