Dallas Convention Center Hotel's Murky Future

As plans by Mayor Tom Leppert and the Dallas City Council to build a convention center hotel move forward, a petition drive that could kill the project is gathering momentum with five hoteliers leading the way, three council members opposing the city's plans and a convention center expert accusing city staff of misleading the public.

Crow Holdings created the political action committee behind the petition drive and is expected to pay for the bulk of the costs, which include radio ads and mailers. The committee, called Citizens Against the Taxpayer-Owned Hotel, seeks a citywide vote in May on City Hall's plans for the city-owned hotel. The city's hotel would compete with the nearby 1,600-room Hilton Anatole Hotel, which Crow Holdings owns. Also supporting the petition drive are Aimbridge Hospitality, which owns several Dallas area hotels; Prism Hotel and Resorts, owners of the Holiday Inn Market Center; Behringer Harvard, owners of the Hotel Palomar; and the Warwick Melrose Hotel, which hosted the September 16 news conference announcing the petition drive.

"I really feel strongly that Dallas should not be involved financially with a project that competes directly with those of us who pay taxes," says Larry McAfee, general manager of the Warwick Melrose on Oak Lawn Avenue.


Dallas City Hall

Fort Worth saw a similar petition drive in October 2002 as it considered building a publicly owned, 600-room, $130 million convention center hotel. More than 15,000 voters signed the petition, paid for by the Radisson Plaza Hotel, which called for amending Fort Worth's charter to prevent the city from directly financing a hotel. A vote was never held, however, as the city eventually scrapped the plans and opened up bidding to private developers after legislation was passed in 2003 that provided tax incentives for such projects. The project moved forward in March 2005 with private ownership, and now the $213 million hotel is scheduled to open in December.

The Dallas committee also is attempting to change the city's charter and will need at least 20,000 signatures from registered Dallas voters to put an amendment on the ballot. The charter change would prevent the "direct or indirect participation by the city in the enterprise of owning, financing, constructing, or operating a hotel."

Council member Mitchell Rasansky calls the council's September 10 approval of $4.4 million in pre-development costs for the hotel "throwing money out the window" and "absolutely asinine." He wants the council to stop spending money on the hotel immediately.

Rasansky says voters should be given a say on the hotel project, but he will not sign the petition or be involved in the campaign because he owns stock in Citigroup, one of six underwriters for the hotel approved March 26 by the council.

Because of Rasansky's conflict of interest, only council members Angela Hunt and Vonciel Jones Hill have voted against plans to move forward with the project. Hunt, who led last year's referendum against the Trinity River toll road, says it's "very likely" that enough signatures will be collected. But Hunt won't be active in the campaign because, she says, she has her hands full with "lots of other issues more critical to my district and constituents."

Hunt says the city could have avoided a referendum if there was more public discussion. Key meetings—including those that selected the site, funding method and developer for the hotel—were held behind closed doors by the city council's Economic Development Committee.

"I'm troubled by this odd metamorphosis on this project that seems to be done mostly behind closed doors," she says.

Hunt was talking about the change from the city's original plan to buy the site for the hotel, purchased for $42 million with opposition from Hunt and Rasansky, and use that land as the city's contribution to a privately owned hotel.

Assistant city manager A.C. Gonzalez, co-chair of the city's convention center hotel task force, stresses that the city's tax base won't be tapped to pay back the loans for construction. Instead, the project will be financed with revenue bonds, which will be repaid with income from the hotel.

The city intends to borrow about $550 million for the hotel—$400 million for construction, $42 million for land, about $58 million for bond fees and interest and $50 million for a reserve account to cover times when the hotel doesn't earn enough to pay the debt.

If that reserve were exhausted, the city council could vote to spend money from other sources to pay for any missed debt payments.

"It is not correct to say that technically the taxpayers have to do it," Gonzalez says. "It is fair to say that certainly there would be a lot of pressure on the council to make good on that."

Dr. Heywood Sanders, a professor at the University of Texas-San Antonio and convention center researcher, says bond investors in other hotel projects using revenue bonds have insisted upon a secondary revenue stream, which oftentimes is a hotel occupancy tax.

"Dallas has absolutely, positively no prospect of selling bonds for this hotel that are backed solely by hotel revenues," Sanders says.

Sanders says there needs to be a serious public discussion in Dallas regarding the risks associated with the project, and that hasn't taken place based on what he has seen in presentations to the council or coverage in The Dallas Morning News. He claims city staff are "misleading the public" by not addressing issues such as the volatile national economy, rising construction and fuel costs and how similar hotels have affected economic growth and convention center attendance in other cities.

"When I look at the staff presentations, they are remarkably limited and incomplete. They are not balanced in any sense, and that's very problematic," Sanders says. "It speaks of a staff that's trying to keep a mayor happy and sell a project and not a staff that's trying to put all the facts on the table in a neutral and professional way. And that's very scary."

The mayor and city council claim a hotel is necessary to save the city's $1 billion investment in the convention center, yet Sanders says they have not provided clear, reliable data to support the notion that the convention center is struggling.

In fact, a study by HVS Consulting, which was commissioned by the city, notes that the Dallas Convention Center experienced "significant growth" with more than 911,000 attendees in 2007 after averaging 728,000 from 2004-2006. The study also says "this strengthening trend is expected to continue through 2010."

Proponents argue a hotel is essential to increasing attendance at the convention center, but the city has failed to provide evidence to support such a claim. For example, the McCormick Place Convention Center in Chicago averaged 3.1 million total attendees from 1995-1997 before opening an attached 800-room hotel in 1998. That year, attendance was 2.9 million and was followed by another three-year average of 3.1 million from 1999-2001.

The addition of the hotel had no positive effect on Chicago's convention business, and even with 2.7 million square feet of exhibit space (by comparison, Dallas has 1.15 million), attendance at McCormick Place dropped to an average of 2.2 million attendees from 2005-2007.

Rasansky says this is not the time to be undertaking this project without knowing the future of the convention business, and he describes the city's progression toward the project as "scary" and "frightening." Like Sanders, he's also critical of city staff.

"I think they have been talked to by someone there who wants to get this thing done, and they're scared to death not to go forward," Rasansky says. "They're following those orders and who is giving those orders."

Opponents have until November 15 to collect signatures. The city secretary will validate the signatures by December 15. The final hotel development agreement is scheduled for a December 10 council vote, and the city is expecting to sell bonds for the project in January.

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