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Point by Point: Key Issues in the Debate for a City-Owned
 $500 million Convention Hotel in Dallas, Texas

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

April 19, 2009 - It'll be a boon to Dallas' economy, filling a floundering convention center with events, cramming local businesses with patrons and creating as many jobs as any stimulus package.

Or it'll be a financial boondoggle, backfiring so violently that it costs Dallas taxpayers precious dollars they can ill-afford to lose during an extended economic downturn.

The two sides trying to win the May 9 vote on whether the city should build and own a hotel attached to the convention center have made their cases in definitive terms, but most of the questions about the $500 million hotel's viability and the ultimate cost to taxpayers can't be answered firmly before the election.

Mayor Tom Leppert, the most notable hotel proponent, and Crow Holdings real estate executive Anne Raymond, the hotel's most outspoken foe, have conducted numerous debates, and their respective sides have spent collective millions promoting their causes through television ads, handbills and marketing calls.

Here's a breakdown of the key issues surrounding the vote.

Cost to taxpayers

Will a publicly owned Dallas Convention Center hotel cost taxpayers money?

It's the debate's central question.

Hotel opponents say it's certain because the financial projections -- a $200-plus nightly room rate and 68 percent occupancy by the middle of next decade -- are unachievable. Hotel supporters acknowledge there's risk to taxpayers but argue that it's minimal and that the project will include several safeguards, most notably a cash reserve.

"The greatest risk is doing nothing at all," Leppert says, noting that the Dallas Convention Center is already being subsidized with about $3 million in taxpayer funds.

A hotel will help reverse that through increased convention business, he adds. As planned, the hotel's construction will be financed by revenue bonds, which are supposed to be repaid by hotel profits, not taxpayers.

So long as the hotel is earning enough money to repay its debt, Dallas taxpayers will not subsidize the hotel.

After that, matters grow cloudy.

City leaders intend to create a cash reserve of about $50 million as part of its bond sale. But because covenants governing the bonds don't yet exist, it's unknown if and when city leaders would use Dallas' general fund to replenish the hotel reserve fund, which would exist to protect bondholders much more than taxpayers.

"We don't know today how much in the reserve fund would have to be utilized until the city turned to taxpayers," said Dave Cook, the city's chief financial officer.

Public subsidy?

If taxpayers ultimately subsidize the convention hotel, how much might it cost them?

The final amount, of course, would depend on how much money the hotel actually lost. But if it lost $25 million and the city's general fund had to cover it, the average Dallas homeowner would pay about $37.

All sides in the debate acknowledge that it's effectively impossible for the hotel to lose its entire investment.

"For that to happen, you'd have to have exactly zero people walk through the hotel's door for 30 years," Dallas City Council member Ron Natinsky said.

Private developer

Opponents consistently say that if the city wants a hotel so badly, it should just offer a developer money to build it.

The city tried, for more than two decades. The most recent attempt to strike a public-private convention hotel partnership -- a plan unveiled in 2004 -- had died a slow, unceremonious death by 2007 when City Hall and the Woodbine Development Corp. scuttled their fruitless negotiations.

Regardless, Leppert says, constructing a privately owned hotel that received city subsidies would guarantee that taxpayers pay for a hotel, since the city would almost certainly use direct municipal funds as incentives. A publicly owned facility benefits from tax-free financing, making the overall project more financially feasible, Leppert explains.

But Raymond notes that plenty of other cities, including Fort Worth, have skirted the public financing route in favor of public-private partnerships. She also criticizes the city for spending $42 million on downtown land last year. If Proposition 1 passes, it won't feature a publicly owned hotel as planned. And then, taxpayers most certainly will fund the purchase, since the city won't be selling revenue bonds to cover the cost.

More conventions

Proponents and opponents agree that Dallas' convention business will increase with the opening of a convention hotel.

But by how much? That's the critical question for the facility's finances. Dallas must, by all accounts, generate a wave of new convention business to make the hotel profitable.

Philip Jones, CEO of the Dallas Convention and Visitors Bureau, says a number of organizations have committed to conducting their conventions in Dallas if the city constructs a convention hotel. He would not release a list.

But Raymond, leader of Citizens Against the Taxpayer-Owned Hotel, contends an incremental increase in conventions simply "won't generate enough money to let the hotel make its mortgage payment."

And she sees little hope that the hotel alone will create a flood of new business, since the nation's convention business is as competitive as ever.

Leppert, however, insists Dallas' accessibility, sunny climate and expanding downtown makes it a continuing attractive option for conventioneers.

Leppert vs. Crow

Is this hotel debate really about Leppert's political resume and real estate mogul Harlan Crow's financial interests?

Leppert first started talking about a Dallas Convention Center hotel in early 2007 as a fledgling mayoral candidate. He's talked about it ever since, and he's largely become the face of the effort.

Crow owns the massive Hilton Anatole hotel along Stemmons Freeway. He does not live in Dallas. And without Crow, there would likely be no Proposition 1, considering his family alone accounts for about $2.7 million -- more than 99 percent -- of Citizens Against the Taxpayer-Owned Hotel's funding through March 31.

Does Crow, who refuses to speak publicly about the issue, stand to financially benefit if the hotel isn't built? More than likely.

Make or lose money?

Publicly owned convention center hotels throughout the nation make money ... unless they lose it.

On one end, there's Denver's convention hotel, the emblem of fiscal success frequently cited by Dallas convention hotel advocates.

On the other, there's St. Louis' flagging convention hotel, the favorite economic scourge of Dallas convention hotel opponents.

But examples of either sort inform the debate in Dallas only to a limited extent, since the city's size, amenities, overall economy, location, climate, tourism cycles, marketing strategies and a host of other factors are different from those in any other city.

Convention hotel foes accurately note that Dallas' hotel market is notoriously weak among large cities, with occupancy rates recently hovering around 55 percent.

But hotel advocates use such a statistic to justify their argument for a convention hotel, saying such a facility will attract new conventions to Dallas, and the proverbial rising economic tide generated will lift hotel occupancy rates everywhere, benefiting most every hotel property. Raymond counters by saying a convention hotel alone won't drive convention business to downtown Dallas, but instead, a more vibrant downtown will.

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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) 2009, The Dallas Morning News

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