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Wichita City Council Members Struggle with Complicated Tax Incentive
 Package that Could Lead to a $12 million Marriott Fairfield Inn
 and Suites Hotel

By Brent D. Wistrom and Bill Wilson, The Wichita Eagle, Kan.McClatchy-Tribune Regional News

February 1, 2010 --Wichita City Council members will likely be questioned and criticized again Tuesday as they consider a complicated tax incentive package that could lead to a $12 million Marriott Fairfield Inn and Suites Hotel at WaterWalk.

Council members delayed a vote on the package Jan. 12 after several residents criticized the plan and asked questions that weren't answered at the meeting. At the time, some council members indicated they didn't fully understand details of the incentives.

Now they are expected to vote on it at their 9 a.m. meeting Tuesday in City Hall.

Several council members remain undecided; they plan to ask more questions and study the incentives.

"This is going to be a hard one for us," said council member Lavonta Williams, whose district includes WaterWalk, a public-private development near the Arkansas River and Kellogg.

Here's a simplification of the incentives:

-- Hotel developer Four-G LLC, owned by Jim Korroch, would get up to $2.5 million from the city to help pay for construction. It would be paid back by the guest tax generated at the new hotel over up to 20 years.

The city used similar incentives to finance the Hyatt Regency Wichita, which the city now owns, and Hotel at Old Town.

-- For the first time, the city would create a "community improvement district" that would allow the hotel to add a 2 cent sales tax on items purchased at the hotel. That money would go through the state and be given to developers to help finance the project.

-- Industrial revenue bonds would make the construction, furnishings and other purchases exempt from sales tax. That's worth $328,945, city reports show.

-- Hotel guests could park at the WaterWalk Place parking garage, which is designated as a public parking place.

An outline of the development costs released Thursday shows that Korroch would send $760,000 to WaterWalk developers in exchange for rights to develop on the land, which WaterWalk got for $1 a year for 99 years from the city.

That money could help recoup expenses WaterWalk developers have incurred in marketing and other activities at the development.

Elaine Sahlins, senior vice president of HVS San Francisco, a national hotel construction cost analyst, said many hotel projects require public-private partnerships, especially in this economy.

Governments often step in, she said, when the hotel is deemed essential to further a downtown redevelopment project.

"They're important components of a downtown redevelopment project, and they're often provided with assistance because they don't make immediate economic sense as a standalone," she said. "They do contribute to the success of the development."

Sahlins said the $760,000 land acquisition price is about a third of the going rate for hotel land.

"The economic reality for a hotel to be profitable is that the land will run around 10 to 15 percent (of project costs)," she said.

Blogger Bob Weeks said city documents never made it clear the $760,000 would go to WaterWalk developer Jack DeBoer.

City documents list that money as "site acquisition costs."

The money comes from an anticipated bank loan to the hotel developers.

Though that isn't directly taxpayer money, Weeks said the development fee obviously is part of the finance gap Korroch presented to make a case for city subsidies.

Doug Rupe, operating manager at WaterWalk, defends the incentives and the hotel project.

The city, its convention bureau and its downtown development consultants have said Wichita needs more downtown hotel rooms to support more conventions at Century II and elsewhere.

Rupe said the hotel will drive more commercial development, such as restaurants, and draw more interest to WaterWalk Place condos.

"We understand that there has been criticism of the proposal," he said. "But keep in mind that the city has a first lien position ahead of the hotel developers' $10 million, and the city's amount will be repaid by the users of the hotel through the tax."

Vice Mayor Jim Skelton said he remains undecided about the deal.

He acknowledged the deal is complicated and angers some. And he said he'd like to know why, if there is a demand for hotel space, there aren't more private developers willing to build without a subsidy.

"I don't like how it looks," he said. "But it is what it is."

Skelton said he feels the city doesn't appear to be risking much in terms of tax dollars since most of it will be generated by the hotel itself.

He said something needs to help generate property taxes to pay off about $41 million in tax increment finance bonds used to finance the streets, sewers and other things on the WaterWalk site.

"This is one of those decisions politicians talk about where it may be unpopular, but in the best interest of the community," he said.

Reach Brent D. Wistrom at 316-268-6228 or bwistrom@wichitaeagle.com.

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To see more of The Wichita Eagle, or to subscribe to the newspaper, go to http://www.kansas.com.

Copyright (c) 2010, The Wichita Eagle, Kan.

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