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To Build a $550 million Convention Center Hotel,  Dallas to
 Pay $25 million More on Convention Center Debt

By Rudolph Bush, The Dallas Morning NewsMcClatchy-Tribune Regional News

Nov. 4, 2008 - To construct a $550 million convention center hotel complex downtown, Dallas must also incur millions of dollars in additional debt payments on the convention center itself, a cost some at City Hall have been reluctant to connect directly to the hotel.

The additional cost -- which would be paid from convention center revenue and backed by taxpayers over 29 years -- is critical to the plan to build the controversial hotel because of the way the current debt on the convention center is structured.

So on Oct. 22, the City Council passed an agreement to retire the current convention center debt by issuing as much as $325 million in new bonds.

According to calculations the council used in approving the measure, the new bonds would cost the city about $225 million more in interest payments over the life of the bonds.

In terms of today's dollars, that cost translates into about $25 million, according to city figures.

The new bonds will also add nine years of payments to the current debt schedule and cost about $750,000 to issue.

Because of the costs and extension of the debt, the plan has drawn sharp criticism from those who oppose the city's plan to finance and own an attached convention center hotel.

"Nobody in their right mind would do something like this. This would be the last way you would get new funds," council member Mitchell Rasansky said.

But city officials and hotel supporters defend the new debt on the convention center as ripe with benefits.

"To me, it's not a cost. We're getting something out of it. We're reinvesting these dollars," Mayor Tom Leppert said.

Over the next 12 years, the new debt will cost the city less in annual payments than the current debt. That means the city probably won't have to dip into its general fund to make the payments as it has done, at a cost of $2 million to $3 million, for the last three years.

Paying off the old debt with the new bonds also will generate upfront cash of $19 million to $40 million -- depending on the deal the city gets at market.

That money will be put back into the convention center for improvements, Dallas Chief Financial Officer Dave Cook said.

Mr. Cook and other city officials stressed that as recently as 2004, the city considered refinancing the convention center debt to lower current payments and get some upfront cash.

But in 2004, the city's push to build the hotel wasn't an issue. Today it is a major controversy, complete with a successful petition drive for a May referendum to prohibit its construction.

And if the city failed to refinance the convention center debt quickly, it would be unable to keep its schedule to begin construction of the hotel next year.

"We would not be able to build a new hotel and capture the city hotel tax on that property, and use that money for hotel revenue bonds because of the current covenant on the older bonds," Mr. Cook said.

That's because covenants written on the current convention center debt require that all hotel occupancy tax collected in the city be applied back to payments on that debt.

But to successfully issue bonds to build the hotel, the city must pledge the hotel's occupancy tax receipts to debt on the hotel -- not to debt on the Convention Center.

Council member Ron Natinsky, who along with Mr. Leppert has been the council's chief backer of the hotel plan, said Monday that the decision to issue new debt on the convention center was only tangentially connected to plans for the hotel.

"It's coincidental to the hotel. You've got the improvements [to the Convention Center] and the cash flow," he said of the benefits to the plan.

At the same time, Mr. Natinsky defended the idea of taking on more debt at the Convention Center to build the hotel.

"If there's no hotel, there's no revenue," he said.

An attached convention center hotel, meanwhile, will bring billions of dollars in economic benefits to the city, he promised.

Mr. Leppert and other hotel backers have argued that without the hotel, Dallas will not be able to compete for convention business with cities such as Houston, Denver and Phoenix.

Yet hotel opponents, chiefly Harlan Crow, owner of the Hilton Anatole, see the refinancing of the convention center as yet another maneuver to ramrod the hotel toward construction before voters are heard in a referendum.

"It was so quietly done, it's just amazing. I'm sure they'll say it was completely vetted, but there was hardly a word said about it," said Anne Raymond, managing director of Crow Holdings.

Indeed, when the council passed the item, little was said about the refinancing of the convention center. Only one vote was cast in opposition.

The council's main opponents of the hotel, Mr. Rasansky and Angela Hunt, weren't present for the vote. The opposing vote came from council member Vonciel Jones Hill, who also has been a consistent opponent of the hotel.

Her concern, however, wasn't the refinancing of the convention center. It was with an accompanying item that pledged $4 million for design work on the hotel.

With the council's approval, the city soon will seek to issue the new bonds on the convention center. After that, it will seek approval to issue more bonds to finance the hotel.

If those bonds are issued, it's possible that efforts to stop the hotel's construction will be too little, too late.

CONVENTION CENTER REFINANCING

In the deal approved Oct. 22 by the Dallas City Council, the city will refinance its debt on the convention center at a cost of about $225 million over the 29-year life of the bonds, vs. the cost of the current debt.

Using a financial concept known as net present value, the $225 million loss will amount to a loss of about $25.3 million in today's money, according to city calculations.

Net present value is a complex measurement of the current worth of future cash flows. It is determined by comparing several factors, including a discount rate.

The city used a discount rate of 6.245 percent to determine the net present value for the new convention center debt.

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Copyright (c) 2008, The Dallas Morning News

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