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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.

Comments

One Response to “A County Funded Hotel – Who Wins?”
  1. Your analysis is sensible from the view of us taxpayers –thanks for your work on these matters, Fred and all at PBCTAB. As a limited government, free market advocate,I don’t believe in ANY government investment/management at all. If private companies don’t see the viability of a project and won’t invest in it then I don’t think it is fair to stick taxpayers with another bad investment. However, there should surely be hospitality companies that would do the job if they had incentives as reasonable taxes and regulations to contend with. No more “pay to play” games! The county could sell the convention center or even give it to a group that would build the needed hotel capacity to make it all work. If none are willing then it should not be done at all as that would be proof that the project is not viable. Experienced pros in the business who put in their own investment are far better judges of potential success than county commissioners of limited experience and no skin of their own in the game.

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