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A Brilliant Economic Strategy or a Downtown Boondoggle - the Proposed
 Dallas Convention Center Hotel Project Meets Stiff Opposition

By Dave Levinthal, The Dallas Morning NewsMcClatchy-Tribune Regional News

Oct. 1, 2008 - Maybe it's brilliant economic strategy to build a half-billion-dollar, publicly funded Dallas Convention Center hotel that so many government officials lust after.

Or maybe it's a downtown boondoggle destined to whack taxpayers in pocketbooks already suffering the effects of dwindling job opportunities and an expanding national financial crisis.

Regardless, even hotel supporters grudgingly acknowledge this much: A group determined to block the facility's construction by next month almost certainly will collect the 20,000 registered voter signatures needed to trigger a citywide referendum on whether to amend Dallas' charter to prohibit publicly owned hotels.

And then what?

Neither side -- hotel backers led by Mayor Tom Leppert and most City Council members, and hotel opponents primarily composed of a few hoteliers and real estate executives, including Harlan Crow and Anne Raymond -- is inclined to make a prediction.

That's in part because the half-year leading up to a May referendum would probably prove rife with uncertainty. The specter of future court battles and other legal wrangling already quietly hangs over today's increasingly contentious and expensive debate over whether Dallas should build a publicly owned convention center hotel in the first place.

Consider: Hotel supporters plan to sell revenue bonds for the project in January, and, by May, they aim to have elements of the facility under construction.

Could the will of Dallas voters stop the cranes and backhoes in their tracks? Or would the vote merely reflect public sentiment, too late to affect the progress of a project already in motion?

"We've got to play all that through. There are a lot of pieces out there, and we're trying to get as good advice as we can," Mr. Leppert said.

The mayor said he's not sure whether the city will attempt to obtain a legal ruling on the effect that a May referendum would have on the hotel plans.

"We're going to have to see what the options are and have our people come back to us with what the options are," he said.

Ms. Raymond, managing director of Crow Holdings and leader of the opposition group Citizens Against the Taxpayer-Owned Hotel, said she isn't sure what effect a referendum would have either.

"I'm not a lawyer," she said. "The question posed is the one we need to figure out, and we haven't answered that yet. I don't know if you can stop it or not."

Ms. Raymond said she's not sure whether she'd consider suing City Hall if a hotel referendum went her side's way, only for the hotel to keep going up.

"I guess it just never occurred to me that we'd get 20,000 taxpayers to say that they don't want this hotel, and the council would ignore that and proceed anyway," she said.

That is, however, precisely what Mr. Leppert and Ron Natinsky, chairman of the council's economic development committee, say they plan to do in the name of moving forward a project they consider essential to the long-term health of Dallas' convention industry -- a major economic engine for the city.

Their hotel itinerary includes:

-- Selecting a hotel company this fall -- Marriott and Omni are the two finalists -- to operate the hotel.

-- Approving a hotel development agreement this fall with Dallas-based Matthews Southwest. The council last month approved a $4.4 million pre-development contract with the firm.

-- Authorizing City Manager Mary Suhm to oversee the sale in January of a yet-to-be-determined amount of revenue bonds to fund the hotel, which is projected to cost upward of $500 million.

Mr. Natinsky said he's confident that the nation's current economic problems will subside enough by January for Dallas to sell its bonds.

David Cook, the city's chief financial officer, concurs. At worst, an unfavorable bond market might cause city staffers to temporarily delay a sale, requiring them to seek new council approval to try a sale again.

But asked if he believed a looming public referendum intended to block a publicly owned convention center hotel would spook investors, he declined to comment.

District 14 council member Angela Hunt, for one, is left wondering.

"It takes an extreme amount of hubris to move forward on a convention hotel bond sale like this when there is a public referendum," Ms. Hunt said. "It's very arrogant for our city government."

Council member Mitchell Rasansky, chairman of the body's finance, audit and accountability committee, is calling on Mr. Leppert to stop hotel plans immediately.

"We simply should not go forward with this resume-building that city officials are engaging in," Mr. Rasansky said. "The mayor should say, 'In light of the economic conditions, I made a mistake,' then stand down. This is not the time the city should be venturing into a speculative project."

But Ms. Hunt and Mr. Rasansky are a small minority on a council that otherwise believes doing nothing to stop the convention center's loss of business worse than building a hotel funded by revenue bonds initially repaid not by taxpayers, but by people staying in the hotel.

Taxpayers would only be exposed to direct risk if there were a catastrophic hotel failure that burned through $50 million in reserve funds, Mr. Natinsky said.

"Do you think a hotel operator would want to come in and do this project if they didn't think it could make money? I don't think so," Mr. Natinsky said.

But said Ms. Raymond: "The city is using fantasy numbers to justify this project. I just don't think the council understands it. The hotel will be filled and great maybe 40, 50, 60 times a year, and then it'll be a financial bloodbath the rest of the year. Dallas' hotel occupancy rates are already among the lowest in the nation for big cities.

"This is destined to fail."

OPPOSITION AD

Details and analysis of a mailer sponsored by an organization opposed to Dallas' plan to build a city-owned convention center hotel.

DETAILS

It's a sixfold color mailer sent to households throughout Dallas. Sponsors wouldn't say what it cost.

CONTENT

The words "Did You Approve This?" are superimposed over a large yellow bank check made out to "City of Dallas" from the account of "Every Dallas Taxpayer." The amount: $400 million.

Inside, the slogan "Safer Streets, Not Hotel Suites" tops chunks of information that aim to discredit hotel backers' assertions that a city-owned hotel would attract big-dollar conventions to Dallas with minimal risk to the city's taxpayers. Under the heading "What's the Risk?," the brochure lists higher taxes, cuts in public services, spiraling costs and bigger deficits. As for whether the hotel would make money, the advertisement flatly states in bold blue letters: "NO PROFIT, GUARANTEED."

The advertisement also says the Dallas City Council-led hotel development process solicited "no public input" and that the hotel would be "wholly funded by taxpayers," result in "higher taxes" and have "no public benefit."

ANALYSIS

Could this group's core argument against a city-owned convention hotel prove true? Certainly. Dallas officials, after all, have a track record of promising big returns on public investments only for reality to kick them in the pants later. (Exhibit A: the $57 million renovation of Dallas' Cotton Bowl that was guaranteed to bring Division I college football games flocking to it.)

This mailer, however, doesn't help anti-hotel advocates' cause by making a series of statements with a heavy fear factor and a light truth quotient. The assertions of "no public input" and "wholly funded by taxpayers" are patently untrue. While the council has this year often met behind closed doors to discuss the hotel project, numerous people -- including folks now involved with Citizens Against the Taxpayer-Owned Hotel -- have addressed the council on the topic in open session. And while hotel backers from Dallas Mayor Tom Leppert on down acknowledge that taxpayers bear the ultimate risk for the hotel's finances, its primary funding source is slated to be revenue bonds, which investors purchase and hotel guests repay by using the facility.

Furthermore, the statement "no profit, guaranteed" is based on the same market data that hotel backers are using to argue that the hotel will indeed generate profit. One of the two sides is destined to be wrong, and leaders from neither group have proved themselves clairvoyant. Says municipal bond specialist and New York University professor Robert Lamb: "None of the numbers people on either side are using are going to turn out to be real."

Dave Levinthal

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To see more of The Dallas Morning News, or to subscribe to the newspaper, go to http://www.dallasnews.com.

Copyright (c) 2008, The Dallas Morning News

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