Jan. 6, 2008 - The Chattanoogan hotel and conference center is making more money than in previous years, but the city-owned facility still is not making enough to cover its debt, records show.

Last year the Broad Street facility in the Southside earned nearly $1.6 million and is on pace to do even better in the current fiscal year, figures show. However, the facility, which does not pay property taxes, is not generating enough money to cover its portion of a $129.2 million bond issue.

City Chief Financial Officer Daisy Madison said the luxury hotel's performance is improving, and she anticipates that hotel operating income will be able to fund full debt payments by the 2008-09 fiscal year.

"Bottom line, the city is really pleased with the direction that The Chattanoogan is going," Ms. Madison said last week. "It has really turned its operations around."

The city is seeking proposals for an appraisal of The Chattanoogan. Ms. Madison said officials want to determine the property's worth since several entities have approached the city about possibly buying the hotel.

"We're not actively seeking buyers," Ms. Madison said. "We're simply responding to interest that has been posed by the public."

The city issued $129.2 million of bonds in 2000 to finance The Chattanoogan, the expansion of the trade center and construction of the Development Resource Center. The cost of the hotel represented 37 percent of the bond issue, making The Chattanoogan portion about $47.8 million.

During the first six years of the hotel's operation, the city paid only interest payments on its bond issue for The Chattanoogan. In 2007, the city also began paying down the principal on the debt, in accordance with the original terms of the bond issue. The city has paid $1.7 million and has more than $46.1 million left to pay on the debt, according to city records. The Chattanoogan's portion of the city's debt last year was nearly $3.6 million, more than twice what the hotel earned.

Besides operating income from the hotel, collections from a portion of the city's sales tax dedicated to economic development and any extra taxes generated within the downtown tourist development zone are used to pay off the city's bond issue, officials said. If those sources don't generate enough money, however, the city must make up any shortfall in its annual debt obligations from its operating budget.

Ms. Madison said selling the property would help reduce the city's debt load and get the hotel on the property tax roll.

Former Chattanooga Mayor Jon Kinsey, who supported the bond issue under his tenure as the city's chief executive, said the hotel's operational cash flow alone never was intended to pay off the debt.

Mr. Kinsey said the hotel has benefited the local economy.

"It's certainly helped the trade center increase its business, (which) has helped the other hotels in town," said Mr. Kinsey, the principal owner of the Chattanooga Choo-Choo hotel. "All in all, I think it's been very good for not only the overall economic growth of downtown but also for the hotel industry."

However, Councilwoman Sally Robinson, a Chattanooga Realtor, said she always has been concerned that The Chattanoogan could compete with private hotels.

"It's always made me uneasy," she said. "I welcome the day that it's off our books and off our watch."

Dan Johnson, chief of staff to Mayor Ron Littlefield, said The Chattanoogan does not compete directly with other area hotels because its focus is on business conference groups.

He said he has a philosophical objection to the public sector being in the hotel business.

"Government should not compete with private enterprise," he said.

Ms. Madison said the hotel and conference center improved the local market and attracted visitors who spend money in the area.

"I think it has enhanced the image of Chattanooga," she said.

E-mail Michael Davis at [email protected]

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