A County Funded Hotel – Who Wins?

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Today the County Commission voted 6-1 to allocate $57M ($27M direct subsidy plus $20M loan guarantee plus $10M cost of the land) toward a 400 room hotel next to the Convention Center. The county would actually own both the land and the building.

Who are the winners and losers in this “public / private partnership”?

First, let’s stipulate that the convention center needs a “headquarters hotel” to make it viable for more than the occasional home show or local meeting. It really wasn’t necessary for the hordes of dark suited businessmen to assure the commissioners of that fact, or that a viable convention center would be good for businesses in the vicinity. Even the Scuba Association and Lion Country Safari came to make that point. People who spend time at conventions can vouch for the fact that needing a 10 minute shuttle ride to and from an event is not conducive to networking or making the most of the convention experience.

Second, lets also stipulate that some amount of public money or other incentive is probably necessary to launch the project, given that nothing is happening without it.

Third, lets acknowledge the fact (that Commissioners Aaronson and Santamaria have done in some detail) that as a business deal, the current proposal is a perfectly awful investment that no sane person would make willingly. On a monetary basis, the county will not see returns for a long time (if ever), and neither the county nor the city of West Palm Beach stand to receive ad-valorem tax revenue on the hotel property.

The winners in this deal are the developer and operator, who have much of their risk assumed by the taxpayers, the businesses in the immediate vicinity that will see increased revenues from conventions (Kravis Center, City Place, Clematis Street, perhaps the Palm Beach restaurants), and the Town of West Palm Beach which would experience growth and an increased tax base from rising valuations associated with new business (even if they get no taxes from the hotel itself). The county commission is also a winner in a moral sense as there would be vindication for hatching a white elephant if it can be made successful,

The losers are the taxpayers who assume the risk of failure (what if they don’t come?), and default on the development loan, and the several million dollars a year of general fund interest payments on the bonds. Bed tax revenue, which can be expected to increase, is restricted in use and cannot offset the drain on the general fund.

Some specific problems we have with the funding plan:

1. Regarding the $20M loan guarantee, think Solyndra. It is similar in two ways – taxpayers take the fall on failure, and the deal pays the taxpayers last as the county sees no revenue until the operator has recouped 10% of their investment or $7M. Solyndra was heralded as a great investment – until it wasn’t.

2. The benefits accrue in geographic proximity to the hotel and flow mostly to West Palm Beach. Yet the citizens of Boca Raton, Jupiter, Wellington and others are asked to pay for it through their property taxes.

3. The existing hotels in the area have large meeting rooms and can support “small” conventions, perhaps to the 500-600 range. The Convention Center is designed to handle up to 6000 according to its website. It is difficult to see how a 400 room headquarters hotel would be make a dent in meeting a need of that size. At some point we expect we will be asked for more money because “the center needs a BIGGER hotel to make it viable”, and the developer does not have the business plan to expand.

4. The data presented to support the project assumptions seem optimistic. The 75% occupancy, the percentage of public investment in convention center projects, the estimates of convention business, the effect on the surrounding area – none of this feels right. Is convention activity nationwide growing? Some studies suggest not. If not, are we poaching from Fort Lauderdale? From Boca Raton? Only public/private projects were included in the averages for amount of public investment for convention center projects. Are there some success stories without public investment? If so where and why? Since the county taxpayers are shouldering the lion’s share of the risk, have the risks been understated? We will be examining these “projections” in a future article.

Today it was wishful thinkers 6, taxpayers 1. Thank you Commissioner Abrams for not drinking the kool-aid.

Commissioners Cap Millage at Last Year’s Levels

The 2:15pm time-certain item 5A3 to set maximum millage for 2013 didn’t get going until well past 3:30 – but it was short and to the point.

County Administrator Weisman made it clear that the only topic that had to be discussed was the setting of maximum millage for the September hearings.  No details of the budget need be addressed until then.  He confirmed to Commissioner Aaronson that the current millage was 4.7815.  Aaronson then made a motion to keep the maximum millage at 4.7815 and Commission Taylor seconded it.

Two members of the public spoke.  Stella Jordan of the Town of South Palm Beach and a member of their town council,  told the Commission that they were fortunate that valuations went up.  She cautioned, however, that spending would be going up with this flat millage and that she would expect next year that millage be reduced.  Alex Larson said she was glad that the Commissioners were not going to raise the millage rate.  But she said was that what their constituents really needed from the Commission and the School Board and all the governments was to lower tax rates.

Back to the Board – Commissioner Burdick questioned the amount actually available for additional spending – which after some clarification, was $800K.  Kudos to Mrs. Burdick for suggesting that perhaps in September the Commission could establish a precedent for taking half of any overage and using it to rollback rates for the taxpayer.  There will be pressures on the Commission to spend to the limit.  We hope that they decide, instead, to give some, if not all, back to the tax-payers.

The July Budget Package – What Has Changed?

On Tuesday, July 10, the Commissioners will set the proposed maximum millage rate based on the July budget package prepared by staff, which recommends keeping the county-wide millage flat at 4.7815.

The agenda item will be discussed on Tuesday, July 10, at 2:15pm (time certain) in the county building at 301 N. Olive, WPB.

This rate is an improvement over the small increase in millage that was proposed in June, reflecting increased valuation estimates from the Property Appraiser.

Is this really an improvement over the June package as a whole? What about compared to last year?

We have opposed millage increases in the past as the valuations were decreasing, with the goal of seeing county spending return to levels that are sustainable as measured by population and inflation. Compared to 2003, the ad-valorem equivalent budget has approached the so-called “TABOR” line, but with valuations bottoming out, we begin a new phase where rising valuations should be accompanied by declining millage rates.

The following table compares millage, proposed tax and ad-valorem equivalent spending between the 2012 budget, the June package and this July package:

2012 Budget June Package July Package Net Change from 2012
Millage 4.7815 4.7984 4.7815 0
Proposed Tax $595,388,733 $599,257,607 $599,618,457 + $4.2M (0.7%)
Fire Rescue
Millage 3.4581 3.4581 3.4581 0
Proposed Tax $175,610,575 $176,358,065 $177,006,499 + $1.4M (0.8%)
Ad-Valorem Equivalent
County Wide $280M $283M $284M + $3.9M (+1.4%)
Library & F/R $228M $229M $230M + $1.8M (0.8%)
Judicial & Other $5.1M $4.8M $4.9M – .2M (-4%)
Sheriff & Const. $439M $444M $444M + $5M (1.2%)
Total $952.1M $960.7M $962.6M + $10.5M (1.1%)

As you can see from the table, compared to June, the millage is less but the proposed tax is slightly higher. Compared to 2012, the proposed tax is $4.2M higher county-wide and $1.4M in Fire Rescue. But the biggest difference is on the spending side of the equation, with Ad Valorem Equivalent rising $10.5M over 2012, half of that at PBSO.

So here is our net:

We are thankful that the proposal does not raise the millage this year – that is real progress from past years. We do wish that the spending was not going up $10M though, and given the bottoming of valuations, we expect to see a reduction in the millage in next year’s budget.