SETTING THE RECORD STRAIGHT CONCERNING PUBLIC CONTRIBUTION GOES UP AND WHILE VALUE OF HOTEL GOES DOWNÂ BY 3RD WARD CITY COUNCIL MEMBER STEPHANIE BRINKERHOFF-RILEY
In August of 2013, the Mayor’s office filed loan documents with City Council to borrow 38.5 million for a downtown hotel and conference center. The project at that time included an approximately 37 million hotel, of which the City would subsidize 20 million. It also included the City paying for ancillary components consisting of a retail space behind the Ford Center, a 336 space parking garage, 2 sky bridges, the hotel foundation footers and infrastructure improvements to MLK, Jr. Blvd., 6th St. and Walnut St. at a cost of approximately 17 million. In return, the developer would add to the project a conference center and 78 high end apartments. The total cost of the project was more than 70 million.
City Council reviewed other similarly subsidized projects in the United States and balked at the level of subsidy on the hotel as outside the norm of under 25%, and negotiations led to an agreement within two weeks to reduce the 38.5 million bond to 20 million and bring in other stakeholders in the community. The cost of the hotel itself was reduced to approximately 31.5 million primarily by the elimination of some rooms and without any changes to the outward appearance of the structure. However, the retail space was eliminated. Old National Bank came forward with a plan to form a partnership with the developer and invest approximately 11 million. The Vanderburgh County Council and Evansville Convention and Visitors Bureau (CVB) pledged a combined 3.5 million in payments to the City over ten years. At the time neither body had the ability to contribute lump sums. The process led to a cap on all public monies of 20 million.
The architectural design of the hotel with 12,000 square feet of conference space was presented as a 10 story urban design with curved glass, a rooftop bar, central heating and air conditioning and an indoor pool. The project was costed out by architects and engineers and presented to the City Council with images of how the block at Walnut and MLK, Jr. Blvd. would be transformed. The loan of 20 million was approved unanimously.
The City Council Finance Committee meeting minutes from September 23, 2014 record an exchange between Chairman Conor O’Daniel and Administration officials confirming that the City’s 20 million contribution will be offset by the County and CVB’s funds at 350,000 a year over 10 years.
The First Amended and Restated Project Development Agreement confirms the County and CVB contributions are within the City’s contribution in at least two places. Page 2, Item 10 states, “…which TIF Bonds will be issued along with other funds will generate Twenty Million Dollars for the Public Funding of the Project…†Page 9 under the section of “Maximum City Contribution†states, “…shall mean Twenty Million Dollars representing the maximum amount of Public Funding to be provided by the Cities Parties toward the costs of the Hotel and Ancillary Project Components…â€
Additionally, the First Amended and Restated Project Development Agreement makes the City responsible for paying all costs related to public funds. This was written initially because the City was fronting the County and CVB contributions to be paid back by those entities over time. This language carried over to the Second Amended and Restated Project Development Agreement and is now problematic, as the City does not have and should not have to generate the CVB’s 2 million contribution up front in addition to its 20 million to be paid on the project.
Over the course of the nearly two years since the City Council agreed to a loan and maximum public subsidy of 20 million on the downtown hotel and conference center project, a lot has changed. The cost to the public has increased and the corresponding value of the product purchased has decreased.
The Mayor’s office and developer failed to accurately determine the cost of giving the public the structure sold to it in August and September of 2013. After the ceremonial groundbreaking in March of 2014 that cost taxpayers at least $7,000, it was acknowledged that the construction cost of the hotel and conference center was off by approximately 14 million. Thereafter Old National Bank acknowledged it had failed to accurately estimate the value of the naming rights to the Centre. Over the course of 2014, the public was repeatedly disappointed by press conferences that ultimately revealed mistakes that could have been avoided.
The hotel although increased in cost to 44 million is 13 rooms smaller (253 to 240), reduced to five stories and a suburban design, has room heating and air conditioning units, no rooftop bar, no high end apartments and no indoor pool. While the parking garage has increased from 336 to 552 spaces, the price has nearly doubled and there are less spaces for hotel use (252). The direct subsidy on the hotel has gone from 7.5 million to 9.9 million.
The Second Amended and Restated Development Agreement for the first time list the County and CVBs’ contributions at 3.6 million and as additional to the City’s 20 million. The public financing is further increased with infrastructure improvements to 6th and Walnut Streets which are estimated to be at least 1 million. The public is also contributing an additional 4.65 million to the parking garage, which is widely regarded by outside experts as overpriced. Depending on one’s view of the parking garage, the public contribution to the hotel and conference center sits at anywhere from 24.6 million to 29.25 million. Additionally, the City is held responsible for any cost overruns related to the ancillary components.
The increased public contribution and decrease in value in the final product should give us all pause in evaluating this project. We should at the very least be honest with ourselves as to what has happened in the drive over the last 3.5 years to bring a convention hotel to downtown Evansville.
