June 10, 2010 --Irving's 2 percent hotel occupancy tax will not fully cover the city's $126 million debt for construction of a new convention center as planned.

The debt is partially backed by property tax revenue, but at least one City Council member said Wednesday that he doesn't want to dip into the general fund to shore up the gap.

City officials said they are instead exploring other options to make up the shortfall, which could exist for four to five years.

Other options for the gap in the initial payment include dipping into hotel occupancy reserve funds or operations funds. They did not disclose the estimated deficit Wednesday.

The shortfall comes on the heels of other budgetary and economic-development woes for the city. Property values have fallen an estimated $5.5 million. The general fund has its own $12 million shortfall. Other construction projects are either behind schedule or have been scrapped altogether.

Council members made several mentions of the debt payment gap during a work session discussion on how to finance an additional $205 million for a planned concert hall and cluster of restaurants near the convention center.

Council members are planning on funding that project with hotel occupancy tax revenues as well. Officials say that entertainment center will draw conventions and spur further commercial and residential development in the Urban Center.

"It will increase occupancies and demands," real estate and development director Brenda McDonald told council members Wednesday.

The Convention Center at Las Colinas is expected to open in December. Construction on the massive building along State Highway 114 has already dramatically changed the skyline of the Las Colinas Urban Center.

Maura Gast, executive director for the Irving Convention and Visitors Bureau, said the expected shortfall won't affect construction or operation of the new building.

Gast said the city has until November to figure out a solution. The city had planned on paying the debt off solely with revenue from taxes charged for hotel rooms.

People who stay in Irving hotels pay 15 percent in taxes on top of the room rate. The city had earmarked 2 percent for the convention center debt. They plan on using another 2 percent for the adjacent entertainment center.

Irving financed the convention center debt based on hotel occupancy projections completed about 18 months ago. Officials said estimates released this week show that decreases in expected hotel construction, hotel occupancy and the rates hotels charge customers made it clear that their initial plan won't cover their required payments.

Gast said the old projections included hotels that were going to be built before the recession but never came to fruition. She said the new numbers excluded those plans.

"Very few of those remain on the books," she said.

Irving took in $18.2 million in hotel occupancy taxes in the 2008 fiscal year. Last year, the number fell to $16.4 million. Hotel tax collections for the first two quarters of this fiscal year were more than $1 million less than what the city had expected.

The council agreed last year to let City Manager Tommy Gonzalez and Chief Financial Officer Max S. Duplant negotiate the sale of up to $130 million in certificates of obligation for the convention center's construction. The total cost is about $133 million.

Certificates of obligation are a common financing tool. They are similar to bonds, but don't require voter approval. City projections predicted that the 2 percent tax would be enough to fund the debt but the certificates were also backed by property tax revenue and an additional 5 percent of the hotel tax. At the time, officials said the financing plan was complex but was necessary to make the certificates attractive to buyers.

On Wednesday, council members told consultants working on financing for the entertainment center that they don't want to end up short on money for that project, too.

Council member Joe Philipp said he wants the financing for the convention center debt and the planned entertainment center to work without further financial aid from the city.

"It's not in the citizens' interest, in my opinion, to use the general fund to make that right," he said.

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