By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
By Eric Nicholson
Opponents of a city plan to publicly fund and own a convention center hotel are talking about—but so far not acting on—a last-ditch option to derail the project: Let voters decide for themselves if they want to invest up to half a billion dollars to become hoteliers.
Council members Angela Hunt and Mitchell Rasansky have been staunch critics of the hotel project, most notably voting against the council's decision to put an option on land where the proposed hotel will be built.
"I think with something as big as this," Hunt says, "I'd want to hear from the voters."
Rasansky stopped talking publicly about the hotel when city attorneys told him he had a conflict of interest because he owns stock in Citigroup, one of the six bond underwriters approved by the council for the project. Rasansky can't participate in council discussion or votes regarding the hotel, but he claims Dallas city attorney Tom Perkins isn't sure if the conflict restricts him from speaking in public. He's awaiting a ruling from the attorney general on that point, and in the meantime, he's talking again. When asked if there should be a referendum, he doesn't hesitate. "Absolutely," he says. "Why are they [city staff] not being transparent? There's the damn answer."
Rasansky's conflict meant he couldn't attend the May 6 closed-door meeting of the city council's Economic Development Committee, at which committee members recommended city ownership and public funding for the hotel. He says he was shocked that the decision was made for the city to own the hotel. "Insanity is the only word," Rasansky says. "Absolute insanity."
For a public vote to become reality, there would need to be political backing to support such an endeavor. While both Hunt and Rasansky support bringing the issue to the voters, they say they have no plans to become significantly involved in a potential vote.
As for financing a possible petition drive to put the hotel before voters, the likely candidate would be Crow Holdings, which owns the Hilton Anatole and has been a longtime critic of using public money to fund a hotel. Gina Norris, an executive with Crow Holdings, says the company supports a public vote but has no immediate plans to get involved in a call for one.
Any forces behind a vote would be allowed to collect petition signatures for 60 days. To get the referendum on the November ballot, at least 10 percent of registered Dallas voters must sign the petitions; that's 53,590 valid signatures, according to the Dallas County Elections Department.
Proponents of the hotel project include Mayor Tom Leppert along with the majority of the city council and staff. Council member Sheffie Kadane, a member of the Economic Development Committee, says city staff provided him with sufficient data to prove the city would profit by owning the hotel, but he admits that additional risk is added to the deal now that taxpayers will be liable for any losses.
Kadane maintains he was originally opposed to city ownership of the hotel, but the information provided at the private committee meeting persuaded him to change his mind. He's unable, however, to explain how the city would be able to profit from hotel ownership.
"I'm just not real clear on all of it," Kadane says. "From what they showed us, they proved that by us owning it, we'll come out ahead on it."
Assistant city manager A.C. Gonzalez says the biggest difference between private and public ownership of a hotel is the "cost of money." Because the city can borrow money at interest rates 1.5 to 3 percentage points lower than a developer, he claims, the city will make a profit by owning the hotel as opposed to subsidizing it.
Based on a study performed by HVS Convention, Sports & Entertainment Facilities Consulting, Gonzalez says the city would make a profit as soon as the hotel opens, which is likely to be early 2012, if it owned the hotel. On the other hand, to make a deal work out with a developer, the city would need to subsidize the project annually at a cost of $8 million to $10 million. Gonzalez, co-chair of the city's convention center hotel task force, says that in order for the city to lose the amount equal to that subsidy, the hotel's occupancy rate would have to drop from a projected 68 percent to below 50 percent.
When told about Gonzalez's reasoning, Rasansky simply said, "I didn't just get off the watermelon truck."
Hunt says she isn't convinced that city staff has provided enough data to support public ownership, but she is still "evaluating the facts and arguments to make a sound decision." She claims the HVS study should be scrutinized because of the company's potential conflict in also providing hotel management services along with investment banking for hotel projects. Hunt adds that "rosy projections" like those provided in the HVS study often don't become reality, and she used the city's recent $50 million budget deficit as an example.
"That is a perfect example of how projections—however based in reality, however supported by facts, however supported by history—can be significantly wrong," she says.
Dr. Heywood Sanders, a professor at UT-San Antonio and a leading researcher analyzing the convention center industry, says the HVS study is "fundamentally flawed analytically." He says the report assumes that a potential hotel in Dallas will perform like convention center hotels in other cities such as San Diego, and it doesn't document the hotel's effect on convention business.
Although financing hasn't been completed for the project, Gonzalez says the city will use revenue bonds to pay for the hotel. These bonds will be secured with the revenue generated from the hotel. Sanders says this funding strategy didn't work in much stronger markets such as San Antonio, Denver, Phoenix and Baltimore, and Dallas will have to commit "substantial tax revenues independent of the hotel's performance" in order to secure loans.
As opposed to most other big projects, the use of revenue bonds allows this potential $500 million project to move forward without consent from voters. Bonds for the Trinity River project and American Airlines Center were narrowly passed by voters in 1998, with the city committing $246 million to the Trinity and $125 million for the AAC. The AAC is also city-owned, but it's operated by the Dallas Mavericks and Dallas Stars, much like the hotel would be operated by a company such as Marriott.
Dallas voters also green-lighted $18 million for the Dallas Center for the Performing Arts in the 2003 bond program. General obligation bonds were used for this project as they were used for the Trinity project, meaning the funding was secured with tax money and required a vote. The AAC is funded with a 5 percent car rental tax and the 2 percent hotel tax hike, which required voter approval because of the changes in taxation.
The city will establish a local government corporation to handle the hotel's financing, Gonzalez says. Norris maintains this is what Crow Holdings expected because many cities do this to keep the money out of the purview of the taxpayers.
"So then the big lie is that this isn't taxpayers' dollars, it's just special project financing that the taxpayers will never be responsible for," she says.
Several issues remained unresolved with this project, such as which developer will be chosen and how much the project will ultimately cost. Gonzalez says the four proposals under consideration range from $350 to $550 million.
Norris says she continues to be dismayed that the city is pushing the decision process forward so quickly. A council vote is scheduled May 28 to approve $42 million to purchase an 8.375 acre plot of land on Young Street as the site for the hotel.
"People are starting to say, 'Golly, the taxpayers don't get a say in this?'" Norris says.