Vote YES on Prop 1 and NO on Prop 2

I’m voting YES on Proposition 1 because I am concerned with the risk to Dallas taxpayers. Proposition 1 will prohibit the city from owning a convention center hotel, as the Mayor has proposed.

In theory, the hotel would be able to pay for itself through its own revenue. But if the hotel doesn’t meet the Mayor’s rosy projections for occupancy, taxpayers get stuck with the bill. So I am voting YES on Proposition 1.

I am voting NO on Proposition 2, which will essentially call for a referendum whenever the city provides more than $1 million in financial incentives for a development.

There are areas of our city that need incentives to convince developers to build there, and developers won’t stick around for a public vote. They’ll simply go elsewhere — Las Colinas, Irving, McKinney — where they can get the same incentives without waiting months for a vote. Bottom line is, Prop 2 has the potential to make Dallas non-competitive and seriously damage our city’s ability to provide reasonable economic incentives to businesses.

On another website, someone posted “So many things would have to go wrong for this hotel to use taxpayer funds.” Not really. Just missing a mortgage payment could force the city to dip into taxpayer debt.

While the hotel debt is initially secured by hotel revenue, it is also secured by taxpayer dollars. Apparently, the market didn’t feel comfortable betting solely on the hotel, so it required additional security — in the form of taxpayer funds. So here’s how it works:

The city’s going to borrow $550 million for the hotel: $500 million to build it and $50 million to set aside in a rainy day fund (the “reserve account”). The reserve account protects bondholders so they know they’ll get repaid — the city can dip into this reserve account if the revenues for the hotel aren’t enough to repay the debt.

If it ended there, I’d be supporting the city-owned hotel, but it doesn’t. The reserve account has to stay at $50 million to satisfy bondholders. Guess who has to keep the reserve account full? Well, if the hotel doesn’t have enough money to pay its mortgage, it surely won’t be able to refill the reserve account. So that will fall on taxpayers. It’s really not that complicated, or that unlikely.

This city-owned hotel is a gamble, and in this economy, it doesn’t make sense for the city to be putting taxpayers at risk.

Congratulations! You’re the Proud Owner of a Convention Center Hotel!

The council voted 11-2 to purchase land for a convention center hotel AND for the city to publicly own the hotel.

We all knew the vote on the land purchase was coming. We’ve been discussing it for months. What we didn’t know — what no one knew until Friday night — was that we were also voting on approving a publicly-owned convention center hotel that will put taxpayers on the hook for $500 million.

Didn’t hear anything about that? That’s because the very first time public ownership was even discussed was last week, when the economic development committee met behind closed doors. And suddenly, without public discussion or debate, the city was getting into the hotel business.

To add insult to injury, these two separate issues were mashed together into one voting item. You either voted to purchase the land AND public ownership of the hotel, or you voted against both.

A little background: on May 2, less than two weeks ago, the Dallas Morning News reported on the mayor’s trip to China:

….Mr. Leppert acknowledged that a break-neck sprint toward a convention center hotel deal perhaps isn’t the most prudent course.

“You come to Hong Kong, and you see the benefits this has for a city,” the mayor said. “But the public money – you want to try to get to zero if you can. I don’t think that’s possible. But I want to take time to minimize it as much as possible.”

How is putting taxpayers on the hook for $500 million “minimizing” public money? How is $500 million anywhere close to “zero”?

Then, on May 6, just a week ago, the whole concept of public ownership was first discussed. Before, we’d only been talking about a public subsidy to encourage a private developer to build a convention center hotel. For example, the city could have purchased the land and given it to a private developer to construct and run the hotel. Now, instead, the city’s suddenly getting into the hotel business.

Here’s what really bothers me about this: the process, or lack thereof. There was NO public discussion about the city owning a hotel. Supporters keep saying “We’ve had months of discussion!” But they know that’s not true. We may have had months of discussion about buying the land, but we have not had ANY public discussion about public ownership.

Even the Dallas Morning News — a convention center hotel supporter — agreed the vote on public ownership was all going too fast:

[F]or those playing along at home – the taxpayers – this appears to be a dizzying sequence of events that did not allow for their participation.

Council members should delay a decision on the hotel’s ownership until this idea has been publicly vetted. The hotel will be an important asset for the city. But the project’s advocates must do more to make the case for the $500 million deal before committing public money to it.

Some council members have asked: Why wait? After all, their questions were answered during last week’s meeting. But Dallas residents who were left on the other side of that closed door might not share their view.

Because these were separate items, Councilmember Hill moved, and I seconded, “dividing the question” so that the two matters (purchase of land and public ownership) could be voted on separately.

The two issues (land purchase and city ownership of the hotel) should not have been combined. Councilmember Hill brought up a very important point: While the first issue — land purchase — may be time-sensitive (we might lose our $1 million option fee if we don’t purchase the property now), the second issue — public hotel ownership — is NOT time-sensitive. There is no urgency to approve public ownership. We didn’t have to do that today, and I can guarantee you we didn’t have enough facts to support it.

To me, this is a no-brainer. If someone really wanted to vote for the hotel, they’d get to vote twice — which is twice the fun. But we lost 7-6, with Hill, myself, Koop, Salazar, Medrano, and Atkins voting to divide the question. Unbelievable.

So forget about transparency. Forget about public discussion. Let’s just do it.

So we voted on both issues, together, even though they are not properly the same question. It passed 11-2 (Rasansky and Garcia could not vote due to a conflict).

The problem with this process is two-fold: One, there has been no public discussion. There has been no real vetting of the pros and cons of the city’s OWNING a convention center hotel.

Two, the city’s core competency is NOT hotel ownership. The city’s core competencies are, or should be, public safety and public infrastructure. We should be focused on providing the safest city, the smoothest streets, the cleanest neighborhoods. Once we master those basics, then we could consider moving on to things like hotel ownership. But to my knowledge, we’re not there yet.

Convention Center Hotel: DCAD Revises Appraisal

Last week, the Dallas Central Appraisal District (the organization that appraises all property in Dallas County for tax purposes) revised its appraisal for the land the city is considering purchasing for the Convention Center Hotel. Previously, DCAD had valued the land at $7.3M. Now, they have assessed it at $36.5M. Why is this important? Because the property owner is asking the city to pay $42M.

When we began discussing paying $42 million for the convention center hotel site, one of the primary questions I asked city staff was: Why would we pay six times the appraised value set by the Dallas Central Appraisal District? Why would we pay $42 million for land valued at only $7 million, particularly when the property owners protested to DCAD last year that $7 million was too much?

This $35 million difference meant one of two things: Either the city was being duped into paying six times what that property was actually worth and the city’s appraisals were wrong, or DCAD had seriously undervalued this commercial property, resulting in years of lost tax revenue to the city. And if it were the latter, if DCAD had undervalued this property, then it stood to reason that it had done the same for other commercial properties across downtown and across the city, and the City of Dallas had lost millions and millions of tax dollars from these undervalued commercial properties. That, of course, meant the tax burden was shifting more and more to residential property owners.

The problem is, under Texas state law, DCAD can obtain the sales prices for residential properties, but not commercial. I, along with Mitchell Rasansky (before he was instructed by city attorneys not to participate in this discussion), had requested that city staff work with DCAD to figure out why there was such a disparity between the city’s appraisals and DCAD’s for the convention center hotel land.

The thing is, the owner of the proposed site for the convention center hotel can’t have it both ways. They can’t claim that the property is worth a whopping $42 million when they want to sell it to the city, but a measly $7 million when they want to pay taxes. I’m glad city staff worked with DCAD to try to more accurately reflect the market value of the property at issue and better gauge the property values of other commercial properties downtown. It makes the asking price for this property somewhat more credible, and, looking at the bigger picture, I am hopeful that we’ll see greater equity in our property tax system so that we are all paying our fair share, not just residential property owners.

At the end of the day, this is all a matter of fairness. It’s not fair for residential property owners to pay more, year after year, to see their appraisals rise every year, and for commercial property owners not to pull their weight due to a loophole in state law that prevents transparency and disclosure.

I understand that DCAD is revising its appraisals for several downtown properties, and perhaps others. Will commercial property owners enjoy seeing their taxes rise? Will they like paying taxes on the full market value of their properties rather than some deflated, undervalued price? Probably not. I sure don’t like paying taxes on my house. But I, along with my neighbors, have to pay taxes on the actual market value of our homes, and it should be the same for commercial property owners across our city. And if the owners of the land for the hotel want the city to pay $42 million, they damn sure better be willing to pay taxes on that amount.

More Info Needed on Proposed Convention Center Hotel

On Wednesday, the Council voted on two matters related to the proposed convention center hotel: The first was to fund an analysis of refinancing the convention center debt (which could provide the city’s funding of the hotel). The second was to approve placing an option on the hotel site.

I voted against both items. Here’s why:

I am not against a convention center hotel, but I have not gotten the facts I need to make an informed decision.

Here are the arguments I’ve heard for why Dallas needs a convention center hotel: The lack of an adjoining hotel is preventing Dallas from attracting large conventions. All the other top 20 convention cities have (or are building) convention center hotels, so we need one to compete.

These are good arguments, but these arguments alone do not substantiate the immense taxpayer-supported, public investment that will be required to construct a convention center hotel. Pertinent information is lacking, primarily economic information about the actual benefits of a hotel to our city.

Some who oppose a convention center hotel point out that if it were a profitable enterprise, the market would have already built one. I disagree. I think a reasonable argument can be made that a convention center hotel is a “loss leader” — an item sold below cost to stimulate other, profitable sales. In other words, the convention center hotel would lure more visitors to Dallas who would shop at our stores, eat at our restaurants, and drive our rental cars, yet use few city services. These additional visitors, the argument goes, will provide a net gain to Dallas, though the convention center hotel itself may operate at a loss.

The loss leader issue in itself doesn’t trouble me. A net gain is a net gain. The problem is, I don’t have the data to prove to me that there will actually be a net gain.

Last fall, when this issue came up, I explained to city staff that I had not made up my mind on whether to support a convention center hotel because I didn’t have the following information:

what are the actual (not projected) direct, indirect, and infused economic gains experienced by other cities that have built convention center hotels in the last ten years? What are the before and after numbers for visitors, conventions, rental car usage, sales tax, retail sales, and restaurant sales (five years before and five years after)? Were there substantial gains, and if so, did those gains justify the significant public investment? Because analysts’ predictions are often much rosier than subsequent reality, obtaining actual numbers from other cities can give us a more realistic expectation of the economic impact that could result from a Dallas hotel.

Also, what about hotels that have “failed” financially? Who picked up the bill? How were those financial deals structured? Why did they fail? What can we do to avoid those pitfalls?

How much might a hotel cost Dallas and how would we pay for it? Would we have to raise taxes? If so, by how much? Again, would the economic gain justify taxpayer investment?

I still haven’t gotten the answers to any of these questions, and until I do, I cannot give my support to the convention center hotel. I again requested this information from staff yesterday, and am hopeful that it will be provided soon.

By moving forward without this information, I think we are putting the cart before the horse, which may end up putting Dallas in a precarious financial situation. No one wants Downtown to succeed more than I do, but I need more facts to jusify supporting such an immense public investment.