Passing the Buck
Who'll pay for a conference center?
Published in April, 2010
Just a few months into reviewing development proposals for the city-owned property known as "the library lot," city council member Stephen Rapundalo sounds weary.
"I don't know where the conspiracy theories come from, but nothing's been predetermined, and nothing will be on my watch," says, Rapundalo who chairs the council-appointed committee evaluating the proposals. The committee's rejection of plans for public, rather than commercial, projects--and developers' private contacts with city officials--have fueled controversy, but Rapundalo denies backroom dealings. "It's an open process," he says, "and I'm committed to due diligence."
For most taxpayers, the question is how much they may end up contributing to any development. The city has narrowed the field to two groups that want to build hotels over the $50 million, 600-space underground parking structure now under construction on South Fifth Avenue. The rub is that parking isn't enough for the would-be developers--they also want the city to build them a conference center.
One, Bloomfield Hills-based Acquest Realty Advisors, originally floated the idea that its payment for the right to build atop the structure "be reduced or deferred" until a publicly financed conference center was built across the street on the former YMCA site.
Now, Rapundalo says, the company is "backing off" from that request. In a letter to the advisory committee, Acquest president David Ong said the firm didn't mean to demand a conference center--only to explain that the development rights would be more valuable if a conference center were built nearby.
The second proposal, by Valiant Partners, leaves no doubt that public funding is required. A group with partners in White Plains, New York, and Ann Arbor, Valiant offered an immediate payment of $900,000, plus another $5.25 million over twenty years--but only if the city finances a $9 million conference center that would be integrated into its hotel-condo-retail project. Valiant figures the city could repay that debt with the money it receives for the development rights, plus property taxes generated by the project.
Under Valiant's proposal, the
city would own the conference facilities, but the hotel would manage them. It didn't address who would pay for depreciation, maintenance, and any operating losses.
That last is the big unknown. While there are some success stories, many publicly owned conference facilities have become money pits. "It's very rare that you find any that pay for themselves," says Casey Wells, who heads the Erie County Convention Center Authority in Erie, Pennsylvania. Erie County devotes 80 percent of its hotel-motel tax to subsidizing the center's losses.
Heywood Sanders, an authority on public investment in event and convention tourism who teaches public administration at the University of Texas at San Antonio, says: "If you're in the preliminary stages, you should be talking about the difficulties other places have gotten into. All across the country there are communities that hoped to bolster their economies but instead wound up with underused space and debt."
The city will have a chance to evaluate those possible downsides. The Downtown Development Authority has agreed to spend up to $50,000 to hire a consultant to examine the proposals and advise on them. The committee's review has been slowed while the consultant is retained.
In an interview with the Observer, Valiant partner Fritz Seyferth contended that its proposed center should be "a moneymaker in itself or at least break even." But Valiant's written proposal paints a much gloomier picture: the reason private developers want the public to finance such facilities, it explains, is that "conference centers rarely generate enough revenue to cover" payments on the debt incurred to build them.
[Originally published in April, 2010.]
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