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Gaylord's Promise in Mesa, Arizona is Big: A Ritzy Hotel and Convention Center, One Million New Visitors,
Thousands of New Jobs - But First Mesa Voters Must Approve a $51 million Bed Tax Deal  
By Sonu Munshi, The Tribune, Mesa, Ariz.McClatchy-Tribune Regional News

February 28, 2009 - --The promise is as big as it gets.

A ritzy hotel and convention center on prime southeast Mesa land, the biggest in Arizona. One million visitors annually drawn from outside the state. Thousands of new jobs and millions of dollars in Mesa's depleted coffers.

All that has been touted in an aggressive $500,000 media blitz by landowner DMB Associates of Scottsdale and developer Gaylord Entertainment Co. of Nashville, Tenn., which wants to buy a portion of DMB's 3,200 acres of land at the Mesa Proving Grounds.

But before anyone dreams any bigger about proposed Spanishstyle buildings with view of the Superstitions, Mesa voters have to approve a $51 million bed tax deal between the city and developers that stands for 30 years.

And voter interest, whether for or against, appears to be quite high for the March 10 special election to decide the issue.

By Friday, nearly 76,000 early ballots which account for more than a third of Mesa's 209,000 registered voters, had been requested for the special election for Proposition 300. And 38,211 of the ballots had been returned to the County Recorder's Office as of Friday. By comparison, 46,000 votes were cast in 2007 for Mesa's Waveyard project.

No group has opposed the election, but the Valley Business Owners (and Concerned Citizens) Inc., a nonprofit that had previously fought the Mesa Riverview project, along with Clint Bolick of the Goldwater Institute, have questioned the constitutionality of the bed tax incentive.

Proponents, including Mesa Mayor Scott Smith, say what the city gets back from this project is worth much more than what is being offered. That is backed by a city-commissioned report by Applied Economics.

Also, they point out that Mesa is not giving away sales tax dollars.

DMB owns 3,200 acres of the General Motors Desert Proving Ground near Elliot and Ellsworth roads, for which it paid $265 million in 2006. As the master developer, DMB intends to see the area built from the ground up with an urban style, combining retail, housing and offices.

With the Phoenix-Mesa Gateway Airport, freeway access and a strong aerospace industry presence nearby, the question skeptics raise is why add hospitality jobs in an area that Mesa has been saying can be a harbinger of well-paying, corporate jobs?

John Bradley, DMB vice president and general manager of the Mesa Proving Grounds project, said the company shares Mesa's vision of "jobs and more jobs." To achieve that, the key is to bring "an appropriate mix of residential, entertainment, retail, without one overbalancing the others.

"Look at downtown Phoenix trying to achieve a vibrant mix, beyond just offices. If we could get that kind of corporate, what a blessing. But would we want the life that's in downtown Phoenix? Absolutely not," Bradley said.

The Gaylord hotel would help act as a catalyst for other commercial development, he said.

Gaylord had targeted the Phoenix area to expand its business model of conventioneers, 50 percent of whom rotate across its four other properties in Nashville, Tenn., Florida, Texas and near Washington, D.C.

"That's really our sweet spot," said Geoff Woodward, Gaylord's vice president of development in charge of the Mesa project.

Robert Brinton, president of the Mesa Convention and Visitors Bureau and treasurer of the Yes on 300 committee, which runs the election campaign, said the Gaylord project will help Mesa hotel's traditional dependence on leisure travelers.

Both Molina and Bolick say that the bed tax incentive, even if it's not hurting Mesa's general fund, is still corporate welfare. Both cite a recent Appeals Court ruling that deemed Phoenix's sales-tax incentive to developers of CityNorth unconstitutional.

The Goldwater Institute had challenged the $97.4 million sales tax subsidy in that case, on grounds it violated the Arizona Constitution's gift clause. The Phoenix City Council has voted to appeal the decision to the Arizona Supreme Court.

"Everyone in Mesa is on notice that this deal is questionable, so if the city decides to proceed, it does so at considerable risk," Bolick said.

Smith maintains the two cases are "apples and oranges," and that the CityNorth ruling is not applicable in Mesa's agreement. "Mesa residents are not paying for this incentive, the city is not losing any general fund money," Smith added. He has also said he's confident that the Gaylord arrangement is legally on "solid ground."

Proponents also say the money, either way, must be used to promote the resorts and the surrounding area.

The bed tax question may not be Gaylord's only problem in the near future.

Under the agreement, construction for Gaylord has to start by December 2011 and facilities open by end of 2014.

But Woodward said in light of the recession, the company cannot push for that timeline with certainty, despite a balance sheet in "excellent shape."

"To kick off a project of this scale in this environment, the prudent thing for us to do as a public company is to not put the company and its balance sheet at risk without any access to capital markets," Woodward said. Smith said the city understands the timeline may shift a bit.

"Our primary objective is to get the project done, but we'll adjust to the economic curveballs thrown at us," Smith said.

Meanwhile, amid weakened convention bookings and fewer tourism dollars flowing in the economy, Gaylord recently cut 350 jobs to save about $35 million.

Referring to Mesa's proposed project, Gaylord chief executive Colin V. Reed told analysts recently that it's "in very early stages and we won't have any material capital expenditures related to it for quite a while."

The company also faces hostile takeover attempts by its largest shareholder, TRT Holdings, whose board chairman, Robert Rowling, recently nominated himself and three other candidates for Gaylord's board of directors. TRT is viewed as a competitor by Gaylord, since it owns Omni Hotels.

Among other things, TRT alleges poor financial performance compared to its peer group and pointed out excessive corporate overhead spending by Gaylord compared to industry standard. But a Gaylord official statement responded, noting that "Gaylord Hotels have demonstrated revenue growth that is above the industry's growth rate for the past three years."

Gaylord plans to nominate its own independent candidates for the board.

Smith said he has been in touch with Reed, who's reaffirmed his commitment to Mesa and their overall business plan.

Financially, Gaylord's hospitality revenue for the full year increased 26.7 percent to $848.3 million, but the outlook for this year and 2010 is not bright, with reduced and canceled bookings. The company's stock also is down, going from its 52-week high of $36.27 in September to its present value hovering at about $6.

Despite reduced bookings and cancellations, Reed has said that Gaylord would be in better shape relative to the industry after its cost control measures.

The projects also would receive an $85.5 million property tax incentive through a mechanism under state law called the government property lease excise tax. That tax allow developers to pay an excise tax in lieu of a property tax, which is far lower. Mesa currently does not have a primary property tax, but later this year a voterapproved secondary property tax will go into effect.

The government property lease excise tax incentive is not part of the March 10 vote.

Smith termed the Gaylord project "a rare opportunity for significant private investment" benefiting the city's general fund. He added that he understood why people are cynical and question this project, especially since Waveyard, the voter-approved water park, which was set to open in 2010, doesn't seem to have any traction yet.

"The difference between this and Waveyard is we're getting a building and a successful business, which has proven successful in other areas. There are no sure things, but the only way to ensure you accomplish nothing is to do nothing," Smith said.

Bed tax break $51M

--A bed tax is a 3 percent tax on a room charge in Mesa, largely paid for by visitors. That tax is transferred by the city to the Mesa Convention and Visitors Bureau, a nonprofit created to promote tourism. Under Mesa's city charter, if the city gives a tax break worth more than $1.5 million to aid construction of facilities, such as arenas or a convention center, that triggers a public vote.

--The bed tax incentive is capped at $44 million for Gaylord and at $7 million for a second resort spread over 30 years.

--Gaylord would retain the full 3 percent bed tax. The second resort would get 2 percent of the bed tax, with 1 percent set aside for the Convention and Visitors Bureau. Mesa retains $25,000 for administrative costs. The money would be used to promote the resorts and the surrounding area.

By the numbers

--Construction for Gaylord and the second resort would bring 8,000 jobs. About 4,000 permanent jobs would be added.

--The 1,500-room Gaylord hotel and a second 490-room resort would generate $838 million in net new revenue for Mesa over 50 years, according to an Applied Economics analysis report. Sales tax revenue is projected at $555.2 million.

--During construction, sales and other taxes benefiting Mesa are expected to be about $75 million.

--The combined investment for the two projects is estimated at $800 million. A championship golf course and retail component are estimated to round out the investment to $1 billion.

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Copyright (c) 2009, The Tribune, Mesa, Ariz.

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