It has been learned by the CCO that Councilman John Friend has announced that he will be voting yes on the new hotel deal. The Mole Nation indicates that a unanimous vote of 9 – 0 may well be the tally next Monday night.

The total of the public money in the deal will consist of $7.5 Million as a direct subsidy to the hotel, $5.4 Million for a parking garage, and $3.6 Million for upgrades and infrastructure all contributed by the City of Evansville and none of which will be coming from the Innkeeper’s taxes.

An additional $3.5 Million will be contributed by the CVB and the County for improvements to the Centre and other infrastructure needed to tie the components of the project together. Sources have informed the CCO that all three sources of funds secured.

This is a developing story.

City Government will have “Skin in the Game” and an ROI on the Convention Hotel

Joe Wallace

The game of deal or no deal that is playing out in downtown Evansville with respect to the proposed convention hotel has a full gamut of opinions ranging from unconditional support at any price to not a dime of public money without equity. From a private investment perspective the return on investment of such a deal easily defined by traditional business metrics based on probability and outcomes.

When calculating the ROI of public dollars the return portion becomes much more derivative in its beneficial components. Placing a value on something like how many more lunches will be sold at any particular Main Street restaurant and how that accrues to the City is real but the range of possibilities is too wide to hang your hat on. The basic direct ROI on the other hand can be grasped fairly easily if the direct tax revenues are the return and the subsidy is the investment.

In the case of the deal put on the table at Monday night’s city council meeting where it was stated that the direct hotel subsidy would be $7.5 Million, the direct return would be the incremental property taxes paid by the hotel plus the county option income tax of 1% collected on the wages paid by the hotel alone.

The property taxes on the hotel by Indiana law will be capped at 3% of the assessed value. The assessed value according to Indiana law is the fair market value of the property as opposed to what the construction cost may end up being. For analysis purposes let’s assume that the fair market value of a 253 room 3-Star hotel will be $100,000 per room or $25.3 Million. The maximum property tax on the property will therefore be $759,000. The reality is that the actual tax will be less so let’s assume the tax is $650,000.

For the COIT using a $100/day room rate, 60% occupancy, and a payroll that is 35% of the net revenue which is typical of lodging businesses, the payroll can be expected to be about $2 Million. That would work out to a COIT collection of 1% or that amount or $20,000 per year making the incremental direct return on the $7.5 Million subsidy bring in $670,000 per year in a highly probable scenario.

The return to the City on this $7.5 Million works out to 8.9% of the subsidy per year which exceeds the interest rate anticipated that the bonds will pay by a significant amount. The most recent payment estimate on the bonds is just over $500,000 so in this likely scenario the cash generated would not only pay the bonds off but would have some margin to cover indebtedness for associated infrastructure. Similar analysis can be done for the apartments and the parking tower and should be done as this week comes to a close and Monday’s vote approaches.

This same analysis applied to a $20 Million direct subsidy as was pushed for last week results in a payment of $1.4 Million per year against revenue of the same $670,000 making that proposal result in a negative return on investment as well as coming up short on the payments. In short last weeks deal would have been a financially poor decision and this weeks has a good return.

The recent reduction in the City subsidy has no only made this hotel contribute to the City’s bottom line it has eliminated the need to tap the Innkeeper’s tax and maybe even riverboat funds to pay for the subsidy.

Of course the businessmen with the $11.5 Million needs to be verified as does the down payment and financing of HCW before the City should pony up with a $7.5 Million direct subsidy. The tortured process if it really works out seems to have resulted in a deal that is good for the people of Evansville, HCW, and the unknown local investors.

ORDINANCE OF THE EVANSVILLE COMMON COUNCIL AUTHORIZING
THE CITY OF EVANSVILLE, INDIANA, TO ISSUE
ONE OR MORE SERIES OF ITS “ECONOMIC DEVELOPMENT
REVENUE BONDS, SERIES 2013 (DOWNTOWN CONVENTION HOTEL PROJECT)”,
IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED
$20,000,000, AND APPROVING AND
AUTHORIZING OTHER ACTIONS IN RESPECT THERETO

WHEREAS, the City of Evansville, Indiana (the “City”), the Evansville Economic Development Commission (“EEDC”), the Evansville Redevelopment Commission (“ERC”), the Evansville Department of Metropolitan Development (“DMD”), and HCW Evansville Development, Inc. (“Applicant”), propose to enter into a Project Development Agreement (the “Project Agreement”) substantially in the form of Exhibit A hereto, relating to the redevelopment of a certain tract of property in the City of Evansville, Indiana (the “City”) in the proximity of the existing Ford Center and the existing Evansville Auditorium and Convention Centre (the “Centre”) (such tract referred to herein as the “Site”), such tract of property being more particularly described in the Project Agreement incorporated herein by reference, such redevelopment to consist of a new downtown convention hotel and ancillary project components including skybridges, a parking garage, a retail building, necessary public infrastructure and streetscape improvements, and renovations to the Centre, as more particularly described in the Project Agreement (the “Project”); and

WHEREAS, the Project is located within the Downtown Redevelopment Area and Allocation Area previously established by the ERC (collectively, the “Downtown Redevelopment Area”); and

WHEREAS, as an inducement to the Applicant to undertake the development of the Project, the City proposes, pursuant to the Project Agreement, to cause to be provided to the Applicant certain funds from the sale of bonds issued by the City for use in the development of the Project; and

WHEREAS, the EEDC has rendered its report regarding the proposed financing of a portion of certain economic development facilities for the Project to be undertaken by the Applicant; and

WHEREAS, the EEDC has heretofore (i) conducted a public hearing in accordance with Indiana Code 36-7-12-24; and (ii) adopted a resolution subsequent to such public hearing, which resolution has been transmitted hereto, finding that the financing of a portion of certain economic development facilities to be developed by the Applicant through the issuance of one or more series of City of Evansville, Indiana, Economic Development Revenue Bonds, Series 2013 (Downtown Convention Hotel Project) (the “Bonds”) complies with the purposes and provisions of Indiana Code 36-7-11.9 and Indiana Code 36-7-12 (collectively, the “Act”), and that such financing will be of benefit to the health, prosperity, economic stability and general welfare of the City and its citizens; and

WHEREAS, the EEDC has heretofore approved and recommended the adoption of this form of ordinance by this City Council (the “Council”), has considered the issue of adverse competitive effect and has approved the forms of and has transmitted for approval by the Council, the Financing Agreement, the Trust Indenture and the form of the Bonds (collectively hereinafter referred to as the “Financing Documents”); and

WHEREAS, the ERC has agreed to pledge property taxes on incremental increases in assessed value of real and personal property located within the Downtown Redevelopment Area (the “TIF Revenues”) to the repayment of the Bonds; and

WHEREAS, the Council has the authority to pledge its distributive share of county option income tax revenues (the “COIT Revenues”) to the repayment of all or a portion of the Bonds; and

WHEREAS, the Council also has the authority to pledge revenues it receives derived from the Vanderburgh County Food and Beverage Tax (the “Food and Beverage Tax Revenues”) to the repayment of all or a portion of the Bonds; and

WHEREAS, no member of this Council has any pecuniary interest in any employment, financing agreement or other contract made under the provisions of the Act and related to the Bonds authorized herein, which pecuniary interest has not been fully disclosed to the Council and no such member has voted on any such matter, all in accordance with the provisions of Indiana Code 36-7-12-16;

NOW, THEREFORE, BE IT ORDAINED:

Section 1. The Project Agreement substantially in the form attached hereto as Exhibit A, as may be modified by the parties provided that any such modification shall not expand the scope of the Project as described therein, is hereby approved, such approval to be evidenced by the Mayor’s execution thereof.

Section 2. It is hereby found that the financing of a portion of the economic development facilities for the Project referred to in the Financing Documents previously approved by the EEDC and presented to the Council, the issuance and sale of the Bonds (one (1) or more series of which may or may not bear interest that is excludable from gross income for federal tax purposes), the use of the proceeds of the Bonds by the Applicant for the financing of a portion of the costs of the Project, the payment of the Bonds from the TIF Revenues, the COIT Revenues, the Food and Beverage Tax Revenues and other sources pursuant to the Financing Agreement, and the securing of the Bonds under the Trust Indenture complies with the purposes and provisions of the Act and will be of benefit to the health, prosperity, economic stability and general welfare of the City and its citizens.

Section 3. At the public hearing held before the EEDC, the EEDC considered whether the Project would have an adverse competitive effect on any similar facilities located in or near the City. This Council hereby confirms the findings set forth in the EEDC’s resolution, and concludes that the Project will be of benefit to the health, prosperity, economic stability and general welfare of the citizens of the City.

Section 4. The substantially final forms of the Financing Documents shall be incorporated herein by reference and shall be inserted in the minutes of the Council and kept on file by the Clerk of the Council (the “Clerk”) or the Controller of the City (the “Controller”). In accordance with the provisions of Indiana Code 36-1-5-4, two (2) copies of the Financing Documents are on file in the office of the Clerk for public inspection.

Section 5. The City shall issue the Bonds in one (1) or more series in a total maximum principal amount not to exceed Twenty Million Dollars ($20,000,000), which Bonds shall mature no later than February 1, 2039, and shall bear interest at a per annum rate not exceeding seven percent (7%). The Bonds are to be issued for the purpose of procuring funds to pay the costs of a portion of the acquisition, construction, installation and equipping of the Project, as more particularly set out in the Financing Documents, incorporated herein by reference, which Bonds will be payable as to principal, premium, if any, and interest solely from the TIF Revenues, the COIT Revenues, the Food and Beverage Tax Revenues and other sources pursuant to the Financing Agreement or as otherwise provided in the above-described Trust Indenture. The Bonds shall never constitute a general obligation of, an indebtedness of, or a charge against the general credit of the City.

Section 6. In addition to the Financing Documents, other documents such as an Official Statement or other disclosure document (an “Official Statement”), a Bond Purchase Contract or other purchase agreement and a Continuing Disclosure Undertaking (collectively with an Official Statement, the “Ancillary Finance Documents”) in such form as may be agreed to by the Mayor of the City (the “Mayor”) or the Controller are hereby authorized and approved. The Mayor or Controller, and each of them, is authorized to deem and determine an Official Statement as the nearly final Official Statement with respect to the Bonds for the purposes of SEC Rule I5c2-12, subject to completion in accordance with such rule and in a manner acceptable to the Mayor or the Controller, and to place such Official Statement into final form as the Final Official Statement of the City. The Mayor or the Controller is authorized to sign the Final Official Statement and by such signature approve its distribution.

Section 7. The Mayor, the Controller and the Clerk are, and each of them is, authorized and directed to execute, attest and affix or imprint by any means the seal of the City to the Financing Documents and Ancillary Financing Documents approved herein on behalf of the City and any other document which may be necessary or desirable prior to, on or after the date hereof to consummate or facilitate the transaction, including the Bonds authorized herein. The Mayor and the Controller are, and each of them is, hereby expressly authorized to approve any modifications or additions to the Financing Documents which take place after the date of this Ordinance without further approval of this Council or the EEDC if such modifications or additions do not affect the terms set forth in this Ordinance and the Financing Documents pursuant to Indiana Code 36-7-12-27(a). The approval of said modifications or additions shall be conclusively evidenced by the execution and attestation thereof and the affixing of the seal thereto or the imprinting of the seal thereon. The signatures of the Mayor and the Clerk on the Bonds may be either manual or facsimile signatures. The Clerk is authorized to arrange for delivery of such Bonds to the Trustee named in the Trust Indenture, and payment for the Bonds will be made to the Trustee named in the Trust Indenture and after such payment, the Bonds will be delivered by the Trustee to the purchasers thereof. The Bonds shall be originally dated the date of issuance and delivery thereof.

Section 8. The provisions of this Ordinance and the Financing Documents securing the Bonds shall constitute a contract binding between the City and the holders of the Bonds, and after the issuance of the Bonds, this Ordinance shall not be repealed or amended in any respect which would adversely affect the rights of such holders so long as the Bonds or the interest thereon remains unpaid.

Section 9. The Council does hereby acknowledge and approve (a) the execution and delivery of the Project Agreement by the EEDC, ERC and DMD; and (b) the pledge of the TIF Revenues, the COIT Revenues, and the Food and Beverage Tax Revenues to the payment of the Bonds pursuant to the Trust Indenture. Pursuant to IC 5-1-14-4, the pledge of the TIF Revenues, the COIT Revenues and the Food and Beverage Tax Revenues pursuant to the Trust Indenture is intended to be binding from the time the pledge is made, with such TIF Revenues, the COIT Revenues and Food and Beverage Tax Revenues so pledged and thereafter received by the City to be immediately subject to the lien of the pledge without any further act, and the lien of such pledge to be binding against all parties having claims of any kind, in tort, contract, or otherwise against the City, regardless of whether the parties have notice of any such lien.

Section 10. The Council hereby finds that (a) the Project and the related financing assistance for the Project provided in the Project Agreement are consistent with the redevelopment plan for the Downtown Redevelopment Area; (b) the Applicant would not develop the Project on the Site, and the Site could not be developed pursuant to the redevelopment plan, without the financing assistance provided in the Project Agreement; (c) the Project furthers the economic development and redevelopment of the Downtown Redevelopment Area; and (d) the Project will be of benefit to the health, prosperity, economic stability and general welfare of the City and its citizens.

Section 11. This Ordinance shall be effective upon its passage by the Council and approval by the Mayor, in accordance with procedures as required by law.
The Common Council of the City of Evansville, Indiana, on the ____ day of ____________, ____, on said day signed by the President of the Common Council and attested by the City Clerk.

Constance Robinson, President of the Common Council, City of Evansville, Indiana

ATTEST:

Presented by me, the undersigned City Clerk of the City of Evansville, Indiana, to the Mayor of said city, this ____ day of _______________, ____, at ____ o’clock __.m. for his consideration and action thereon.

Laura Windhorst, City Clerk
City of Evansville, Indiana

Having examined the foregoing ordinance, I do now, as Mayor of the City of Evansville, Indiana, approve said ordinance and return the same to the City Clerk this ____ day of ________________, ____, at _____ o’clock __.m.

Lloyd Winnecke, Mayor
City of Evansville, Indiana